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Housing Prices and Fundamentals: The Role of a Supply Shifter

  • Nazif Durmaz

    ()

    (Stetson University)

The present paper empirically investigates the cointegrating relation between housing prices and economic fundamental variables in the US housing market. Employing simple yet rigorous econometric techniques, the present paper finds strong evidence in favor of cointegrating relations in most US states when both demand and supply side fundamental variables are included in the cointegrating regression. This result casts doubt on previous empirical work that reports a lack of cointegrating relations of housing prices with mostly demand-side fundamental variables. The previous literature may suffer a misspecification problem. Further, the present cointegrating vector estimates seem consistent with economic theory only when both demand and supply variables are included.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P221.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2468-2479

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Handle: RePEc:ebl:ecbull:eb-11-00314
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  1. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  2. Park, Joon Y, 1992. "Canonical Cointegrating Regressions," Econometrica, Econometric Society, vol. 60(1), pages 119-43, January.
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  5. Holly, Sean & Pesaran, M. Hashem & Yamagata, Takashi, 2006. "A Spatio-Temporal Model of House Prices in the US," IZA Discussion Papers 2338, Institute for the Study of Labor (IZA).
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  8. Zephyr, 2010. "The city," City, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
  9. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  10. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
  11. Vyacheslav Mikhed & Petr Zemcik, 2007. "Do House Prices Reflect Fundamentals? Aggregate and Panel Data Evidence," CERGE-EI Working Papers wp337, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  12. Zemcik, Petr & Mikhed, Vyacheslav, 2009. "Do House Prices Reflect Fundamentals? Aggregate and Panel Data Evidence," ERES eres2009_275, European Real Estate Society (ERES).
  13. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
  14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  15. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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