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Persistence and Cyclical Dynamics of US and UK House Prices: Evidence from Over 150 Years of Data

Author

Listed:
  • Giorgio Canarella

    (University of Nevada Las Vegas, US)

  • Luis A. Gil-Alana

    (University of Navarra, Pamplona, Spain)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Stephen M. Miller

    (University of Nevada Las Vegas, US)

Abstract
We propose a modeling approach for the historical series of real and nominal house prices in the United States and the United Kingdom that permits the simultaneous estimation of persistence at zero frequency (trend) and at frequency away from zero (cycle). We also consider the separate cases of a standard I(d) process, with a pole at the zero frequency, and a cyclical I(d) model that incorporates a singularity at a non-zero frequency. We use annual data from 1830 to 2016 for the United States and 1845 to 2016 for the United Kingdom. We find, in general, that the degree of fractional integration associated with the long run or zero frequency is less than one, but greater than 0.5, while the degree of fractional integration associated with the cyclical frequency is greater than zero and less than 0.5. Thus, the long-run component of house prices is nonstationary but mean reverting, while the cyclical component is stationary. This contrasts with the results of the standard model and much of the empirical literature, where the rejection of the unit root seldom occurs. Some policy implications of the results appear in the conclusion.

Suggested Citation

  • Giorgio Canarella & Luis A. Gil-Alana & Rangan Gupta & Stephen M. Miller, 2018. "Persistence and Cyclical Dynamics of US and UK House Prices: Evidence from Over 150 Years of Data," Working Papers 201838, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201838
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    2. Ren, Xiaohang & Xiao, Ya & Duan, Kun & Urquhart, Andrew, 2024. "Spillover effects between fossil energy and green markets: Evidence from informational inefficiency," Energy Economics, Elsevier, vol. 131(C).
    3. Guglielmo Maria Caporale & Luis Alberiko Gil-Alana, 2023. "Long-Run Trends and Cycles in US House Prices," CESifo Working Paper Series 10751, CESifo.
    4. Abebe Hailemariam & Sefa Awaworyi Churchill & Russell Smyth & Kingsley Tetteh Baako, 2021. "Income inequality and housing prices in the very long‐run," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 295-321, July.

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    More about this item

    Keywords

    Long memory; house prices; fractional integration; cycles;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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