the spatial and temporal diffusion of house prices in the uk abstract 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

u s metropolitan house price dynamics abstract using data for 70 u s metropolitan areas this study explores spatial heterogeneity in house price dynamics we use recent advances in panel econometrics that allow for spatial heterogeneity cross sectional dependence and non stationary but cointegrated data we test for spatial differences and analyze the relationship between the price elasticity of housing supply and the income elasticity of prices as well as bubble size and duration the long term elasticity of house prices with respect to aggregate personal income averages 0 81 but varies considerably across metropolitan areas the long term income elasticity generally is greater in the more supply inelastic metropolitan areas and we show that bubble size and duration are inversely related to supply elasticity also short term momentum and reversion dynamics show substantial spatial heterogeneity

driving to opportunity local rents wages commuting costs and sub metropolitan quality of life we examine variation in local rents wage levels commuting costs household characteristics and amenities within metropolitan areas for 2071 areas covering the united states by density and central city status we demonstrate the sensibility of estimating wage levels by workplace not residence and recover decentralized rent gradients that fall with commuting costs we construct and map a willingness to pay index which indicates the quality of life typical households receive from local amenities when households are similar mobile and informed this index varies considerably within metros and is typically high in areas that are dense suburban sunny mild safe entertaining and have elevated school funding

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

urban decline and durable housing urban decline is not the mirror image of growth and durable housing is the primary reason the nature of decline is so different this paper presents a model of urban decline with durable housing and verifies these implications of the model 1 city growth rates are skewed so that cities grow more quickly than they decline 2 urban decline is highly persistent 3 positive shocks increase population more than they increase housing prices 4 negative shocks decrease housing prices more than they decrease population 5 if housing prices are below construction costs then the city declines and 6 the combination of cheap housing and weak labor demand attracts individuals with low levels of human capital to declining cities

prospective monetary policy and the empirical relation between money and output abstract this note clarifies the empirical implications of non neutral prospective monetary policy the basic message is that prospective monetary policy even if empirically important is not an explanation for the positive correlations between observed money growth and output found in the data

drawing inferences about housing supply elasticity from house price responses to income shocks abstract the purpose of this paper is to provide information about the price elasticity of the supply of housing i examine the relationship between the average price of single family housing and the amount of personal income a two equation vector error correction system is estimated using a panel data set consisting of 76 msas from 1980 to 1998 the results suggest an elastic long run supply function but a relatively slow pace of adjustment to long run equilibrium hence a major demand shock can be expected to impact housing prices for several years following the shock differences in the responsiveness among subgroups of msas are examined and found to be generally minor

testing the efficiency of the norwegian housing market abstract the question of whether or not the housing market is efficient is posed by an increasing number of economists policymakers homebuyers and homesellers this article tests the efficiency hypothesis on data from the housing market in oslo over the period 1991 2002 employing the case shiller time structure test on a repeat sales house price index and returns to housing we demonstrate that both the repeat sales house price index and returns contain time structure and that the housing market is characterized by inefficiencies we also find surprisingly that the housing market consistently yields higher appreciation at lower volatility than the stock market over the period

social capital barriers to production and capital shares implications for the importance of parameter heterogeneity from a nonstationary panel approach recent advances in the growth literature have proposed that difficult to quantify concepts such as social capital may play an important role in explaining the degree of persistent income disparity that is observed among countries other recently explored possibilities include institutional mechanisms which generate barriers to aggregate production an important limitation for empirical work in this area stems from the fact that it is difficult to distinguish sources of heterogeneity when direct observations are not available in this study we show how developments in the analysis of nonstationary panels can aid in this endeavor in contrast to traditional dynamic panel data analysis this approach focuses explicitly on low frequency behavior under relatively mild assumptions the approach can be used to infer properties of aggregate production which are robust to the presence of large classes of unobserved features in this framework we are able to estimate and test the distribution of production function parameters that would be required in order to generate conditional forecast convergence of per capita incomes even when some of the key factors required to explain growth are unobserved the results indicate that in order to fully explain the observed persistence in the disparity of per capita incomes the manner in which unobserved mechanisms influence production must go beyond merely accounting for differences in the trending behavior of aggregate productivity specifically if such mechanisms are to be successful empirically they must also be able to account for cross country heterogeneity in steady state capital shares this adds to a growing literature that provides support for models with multiple production regimes copyright 2007 john wiley sons ltd

leverage and house price dynamics in u s cities we use city level data to analyze the relationship between homeowner borrowing patterns and house price dynamics our principal finding is that in cities where a greater fraction of homeowners are highly leveraged i e have high loan to value ratios house prices react more sensitively to city specific shocks such as changes in percapita income this finding is consistent with recent theories that emphasize the role of borrowing in shaping the behavior of asset prices

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

chaotic dynamics in a monetary economy with habit persistence abstract this paper develops a cash in advance model for persistent habits of consumption with a binding cash in advance constraint the economic transition can be represented by a one dimensional or two dimensional dynamical system depending on persistent habits of only cash goods consumption or both cash goods and credit goods consumption respectively we verify the existence of entropic chaos and ergodic chaos for the former case and identify the presence of entropic chaos for the latter

interest rates aggregate information and monetary policy abstract interest rates set on economy wide markets represent an important source of information to economic agents within the class of business cycle models advanced by lucas and barro this paper explores the information conveyed by such aggregate signals and the types of monetary policies that can influence economic activity by changing the information content of interest rates

housing dynamics an urban approach abstract a dynamic linear rational equilibrium model in the tradition of alonso rosen and roback is consistent with many outstanding stylized facts of housing markets these include a that the markets are local in nature b that construction persistence is fully compatible with mean reversion in prices and c that price changes are predictable calibration exercises to match moments of the real data have notable successes and failures the volatility in local income processes as reflected in hmda mortgage applicant data can account for much of the observed price and construction volatility except for the most inelastically supplied local markets the model s biggest failure lies in its inability to match the strong persistence in high frequency price changes from year to year

chaotic dynamics in a cash in advance economy abstract this paper introduces sufficient conditions for the existence of deterministic cycles and chaos in cash in advance models building on the earlier work of woodford 1994 chaotic equilibria are shown to be particularly likely in the cash in advance model because of a unique characteristic of such models a discontinuous derivative in the difference equation map at the satiation level of real balances the existence of a kink means that chaotic equilibria may exist without implausibly large curvatures in the utility function since a chaotic time series that makes use of the kink would sometimes exhibit zero nominal interest rates the paper also gives an example of chaos in which nominal interest rates remain strictly positive

residential land use regulation and the us housing price cycle between 2000 and 2009 abstract in a sample covering more than 300 cities in the us from january 2000 to july 2009 we find that more restrictive residential land use regulations and geographic land constraints are linked to larger booms and busts in housing prices the natural and man made constraints also amplify price responses to the subprime mortgage credit expansion during the decade leading to greater price increases in the boom and subsequently bigger losses contrary to prior literature our findings indicate a significant link between supply inelasticity and price declines during the bust whereas glaeser et al 2008 found little evidence of such a relationship from an earlier downturn from 1989 to 1996

sunspot equilibria rational bubbles in a model of money in the utility function abstract sunspot equilibria are constructed in brock s 1975 model of money in the utility function serial correlations of real balances and the nominal interest rate in these equilibria can be either positive or negative the example here suggests that local sunspots are more likely to exist when the agent s discount rate is small and that serial correlations in local sunspots when they exist are inversely related to the rate of money growth it is also shown that stationary sunspots may exist even when equilibrium cycles do not

habit formation and intertemporal substitution in individual food consumption individual food consumption data are used to examine three issues first is food consumption linked intertemporally at the individual level second does the association between current and past consumption reflect habit or heterogeneity third what do the estimates imply about the intertemporal elasticity of substitution the authors find that habit matters that controlling for heterogeneity reduces estimated habit effects and that the product of the estimated intertemporal elasticity of substitution and the risk aversion parameter is less than one these results all lead to rejection of time separable specifications of intertemporal consumption behavior copyright 1996 by mit press

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

the capital gains effect in the demand for housing abstract recent concerns about speculation in housing markets have underscored the fact that housing is not only a consumption good but is also an investment asset with uncertain potential to generate capital gains we present a theoretical model of housing demand under uncertainty that captures these dual characteristics emphasis is placed on the formulation of expectations about housing prices and the role that potential capital gains may play in the demand for owner occupied housing services the model is then taken to the data econometric analysis of data from florida a state known for periodically dynamic housing markets is carried out we find that an increase in housing prices increases the demand for owner occupied housing services thus housing s role as investment asset with its potential for capital gains dominates its role as consumption good which alone would produce a downward sloping own demand curve rather than one which is upward sloping our theoretical model fully rationalizes this econometric result

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

money and external habit persistence a tale for chaos this paper studies the dynamic properties of a simple monetary economy model with external habit formation in which money is used for transaction motives we show that large enough though reasonable habit can generate deterministic cycles and chaotic equilibria

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

the permanent income hypothesis and the real interest rate some evidence from panel data abstract a test of the permanent income hypothesis in panel data is formulated taking into account both the time series and cross section variation in the rate of return the over identifying restrictions of the theory rejected

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

endogenous price fluctuations in an optimizing model of a monetary economy this paper demonstrates that an optimizing model of a monetary economy can produce perfect foresight equilibria in which the price level fluctuates forever cyclically or chaotically fluctuating equilibria are more likely to exist when the rate of money supply growth is high furthermore the set of equilibrium prices may have a complicated topological structure which poses a more serious problem concerning the validity of comparative statics method than any sort of indeterminacy previously discussed in the literature copyright 1991 by the econometric society