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Spatial and Temporal Diffusion of House Prices in the UK

  • Sean Holly
  • M. Hashem Pesaran
  • Takashi Yamagata

This paper provides a method for the analysis of the spatial and temporal diffusion of shocks in a dynamic system. We use changes in real house prices within the UK economy at the level of regions to illustrate its use. Adjustment to shocks involves both a region specific and a spatial effect. Shocks to a dominant region - London - are propagated contemporaneously and spatially to other regions. They in turn impact on other regions with a delay. We allow for lagged effects to echo back to the dominant region. London in turn is influenced by international developments through its link to New York and other financial centers. It is shown that New York house prices have a direct effect on London house prices. We analyse the effect of shocks using generalised spatio-temporal impulse responses. These highlight the diffusion of shocks both over time (as with the conventional impulse responses) and over space.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-01/cesifo1_wp2913.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2913.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2913
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  1. Stephen Gibbons & Stephen Machin, 2004. "Valuing rail access using transport innovations," LSE Research Online Documents on Economics 19989, London School of Economics and Political Science, LSE Library.
  2. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  3. Bram van Dijk & Philip Hans Franses & Richard Paap & Dick van Dijk, 2011. "Modelling regional house prices," Applied Economics, Taylor & Francis Journals, vol. 43(17), pages 2097-2110.
  4. 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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  11. Alexander Chudik & M. Hashem Pesaran, 2013. "Econometric Analysis of High Dimensional VARs Featuring a Dominant Unit," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 592-649, August.
  12. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
  13. Chudik, Alexander & Pesaran, Hashem, 2009. "Infinite-dimensional VARs and factor models," Working Paper Series 0998, European Central Bank.
  14. Pesaran, M. Hashem, 2004. "A Pair-Wise Approach to Testing for Output and Growth Convergence," IZA Discussion Papers 1313, Institute for the Study of Labor (IZA).
  15. Chudik, Alexander & Pesaran, Hashem & Tosetti, Elisa, 2009. "Weak and strong cross section dependence and estimation of large panels," Working Paper Series 1100, European Central Bank.
  16. Lung-Fei Lee, 2004. "Asymptotic Distributions of Quasi-Maximum Likelihood Estimators for Spatial Autoregressive Models," Econometrica, Econometric Society, vol. 72(6), pages 1899-1925, November.
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  23. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  24. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
  25. William N. Goetzmann & Bradford Case & K. Geert Rouwenhorst, 1999. "Global Real Estate Markets: Cycles And Fundamentals," Yale School of Management Working Papers ysm116, Yale School of Management.
  26. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  27. Holly, S. & Petrella, I., 2008. "Factor demand linkages and the business cycle: Interpreting aggregate fluctuations as sectoral fluctuations," Cambridge Working Papers in Economics 0827, Faculty of Economics, University of Cambridge.
  28. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
  29. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
  30. Bernard Fingleton, 2008. "A generalized method of moments estimator for a spatial model with moving average errors, with application to real estate prices," Empirical Economics, Springer, vol. 34(1), pages 35-57, February.
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