The dynamics and volatility of commercial and residential property prices : Theory and evidence

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

30 Scopus Citations
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Original languageEnglish
Pages (from-to)95-123
Journal / PublicationJournal of Regional Science
Volume44
Issue number1
Publication statusPublished - Feb 2004
Externally publishedYes

Abstract

This article investigates the dynamics of property prices and their interaction with output growth in a general equilibrium model. Closed form solutions and testable hypotheses are derived from a mildly restricted version of the model. The testable hypotheses are broadly supported empirically. In particular, (1) the volatility of commercial property prices is higher than that of residential property prices, (2) each of the lagged, contemporary, and forward commercial property prices is positively correlated with residential property prices, (3) the contemporaneous covariance between the two property prices is larger than the lagged covariance, and (4) output growth is positively correlated with both property prices. These results are consistent with simulations results that are based on a more general specification of the model. © Blackwell Publishing, Inc. 2004.