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Higher frequency hedonic property price indices: a state-space approach

Author

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  • Robert J. Hill

    (University of Graz)

  • Alicia N. Rambaldi

    (The University of Queensland)

  • Michael Scholz

    (University of Graz)

Abstract

The hedonic imputation method allows characteristic shadow prices to evolve over time. These shadow prices are used to construct matched samples of predicted prices, which are inserted into standard price index formulas. We use a spatio-temporal model to improve the method’s effectiveness on housing data at higher frequencies. The problem is that at higher frequencies, there may not be enough observations per period to reliably estimate the characteristic shadow prices. In such cases, the reliability of the hedonic imputation method is improved by using a state-space formulation which yields estimates of the shadow prices that are weighted sums of previous periods’ information. In addition, the state-space representation of the model includes a geospatial spline surface which significantly reduces the number of parameters to be estimated when compared to the standard practice of including postcode dummies in the model. Empirically, using a novel criterion, we show that in higher frequency comparisons, our hedonic method outperforms competing alternatives.

Suggested Citation

  • Robert J. Hill & Alicia N. Rambaldi & Michael Scholz, 2021. "Higher frequency hedonic property price indices: a state-space approach," Empirical Economics, Springer, vol. 61(1), pages 417-441, July.
  • Handle: RePEc:spr:empeco:v:61:y:2021:i:1:d:10.1007_s00181-020-01862-y
    DOI: 10.1007/s00181-020-01862-y
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    More about this item

    Keywords

    Housing market; Hedonic imputation; State-space model; Geospatial data; Spline; Quality adjustment and matched sample;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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