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Construction of a Spatial Housing Price Index by Estimating an Almost Ideal Demand System

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  • Iturra, Victor
  • Paredes - Araya, Dusan

Abstract

The aim of this article is to build a spatial housing price index for the Chilean communes (the commune political body similar to a municipality or county). The first step is to recover hedonic prices of three housing attributes by estimating a mixed index model (Bowden, 1992) using a generalized method of moments procedure. Secondly, a censored almost ideal demand system (Deaton and Muellbauer, 1980) is estimated to build expenditures for every commune and to compare them among different spatial units, while maintaining a constant utility level. Using micro data from the 2009 CASEN survey, we show that there are important differences in housing prices among Chilean communes and the axiomatic approach tends to understate spatial index compared to economic approach.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30581.

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Date of creation: 29 Apr 2011
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Handle: RePEc:pra:mprapa:30581

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Keywords: spatial housing price index; mixed index; demand system with censored data; economic approach;

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  1. Edward L. Glaeser & Jed Kolko & Albert Saiz, 2000. "Consumer City," Harvard Institute of Economic Research Working Papers 1901, Harvard - Institute of Economic Research.
  2. Timmins, Christopher, 2006. "Estimating spatial differences in the Brazilian cost of living with household location choices," Journal of Development Economics, Elsevier, vol. 80(1), pages 59-83, June.
  3. Eugenio Figueroa & George Lever, 1992. "Determinantes del precio de la vivienda en Santiago: Una estimación hedónica," Estudios de Economia, University of Chile, Department of Economics, vol. 19(1 Year 19), pages 67-84, June.
  4. W. Erwin Diewert, 1995. "Axiomatic and Economic Approaches to Elementary Price Indexes," NBER Working Papers 5104, National Bureau of Economic Research, Inc.
  5. Dusan Paredes & Patricio Aroca, 2008. "Metodología para Estimar un Indice Regional de Costo de Vivienda en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(131), pages 129-143.
  6. Jahyeong Koo & Keith Phillips & Fiona Sigalla, 1997. "Measuring regional cost of living," Working Papers 9713, Federal Reserve Bank of Dallas.
  7. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
  8. Stephen Malpezzi, . "Hedonic Pricing Models: A Selective and Applied Review," Wisconsin-Madison CULER working papers 02-05, University of Wisconsin Center for Urban Land Economic Research.
  9. Dusan Paredes, 2011. "A methodology to compute regional housing price index using matching estimator methods," The Annals of Regional Science, Springer, vol. 46(1), pages 139-157, February.
  10. Bowden, Roger J, 1992. "Competitive Selection and Market Data: The Mixed-Index Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 625-33, July.
  11. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  12. Halvorsen, Robert & Pollakowski, Henry O., 1981. "Choice of functional form for hedonic price equations," Journal of Urban Economics, Elsevier, vol. 10(1), pages 37-49, July.
  13. Ricardo Lira, 1978. "Precios Implícitos de Características de Viviendas en Santiago," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 15(44), pages 67-90.
  14. Brasington, David M. & Hite, Diane, 2008. "A mixed index approach to identifying hedonic price models," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 271-284, May.
  15. Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-71, July.
  16. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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Cited by:
  1. Dusan Paredes Araya & Victor Iturra Rivera, 2013. "Substitution bias and the construction of a spatial cost of living index," Papers in Regional Science, Wiley Blackwell, vol. 92(1), pages 103-117, 03.
  2. Dusan Paredes, 2012. "Alternative theories for explaining the spatial wage inequality: a multilevel competition among human capital, NEG and amenities," Documentos de Trabajo en Economia y Ciencia Regional 20, Universidad Catolica del Norte, Chile, Department of Economics, revised Apr 2012.

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