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Unit Roots and Structural Change: An Application to US House-Price Indices

Listed author(s):
  • Giorgio Canarella

    ()

    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen M. Miller

    ()

    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen K. Pollard

    ()

    (Department of Economics, California State University, Los Angeles)

This paper employs unit-root tests that allow for two endogenous breaks as suggested by Lumdaine and Papell (1997) and Lee and Strazicich (2003) to investigate the returns on the S&P/Case-Shiller Home Price Indices. The tests that assume structural stability provide no evidence against the unit-root hypothesis in all returns series. Conversely, the Lumdaine-Papell and Lee-Strazicich tests indicate that significant structural breaks exist. Only the Lee-Strazicich test, however, which incorporates structural changes under the null hypothesis, finds that the returns to houses exhibit trend stationarity with structural breaks, in most cases, rather than a random walk. Following Meen (1999), we also investigate the stationarity of the metropolitan house-price ratios. The findings of the Lumsdaine-Papell test provide no evidence against the unit-root hypothesis in all house-price ratio series. Conversely, the Lee-Strazicich test finds broken-trend stationarity of the metropolitan house-price ratios for Boston, Miami, and New York.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/1004.pdf
File Function: First version, 2008
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Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 1004.

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Length: 39 pages
Date of creation: Aug 2010
Handle: RePEc:nlv:wpaper:1004
Contact details of provider: Phone: (702) 895-3776
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Web page: http://business.unlv.edu/econ/

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