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Spatial and Temporal Diffusion of House Prices in the UK

  • Holly, Sean

    ()

    (University of Cambridge)

  • Pesaran, M. Hashem

    ()

    (University of Cambridge)

  • Yamagata, Takashi

    ()

    (University of York)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4694.

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Length: 42 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published as 'The spatial and temporal diffusion of house prices in the UK ' in: Journal of Urban Economics, 2011, 69 (1), 2 - 23
Handle: RePEc:iza:izadps:dp4694
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  1. Pesaran, M.H. & Weiner, S.M., 2001. "Modelling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Cambridge Working Papers in Economics 0119, Faculty of Economics, University of Cambridge.
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