Spatial and Temporal Diffusion of House Prices in the UK

42 Pages Posted: 1 Feb 2010

See all articles by Sean Holly

Sean Holly

University of Cambridge - Department of Applied Economics

M. Hashem Pesaran

University of Southern California - Department of Economics

Takashi Yamagata

University of Cambridge - Faculty of Economics and Politics

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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.

Keywords: house prices, cross sectional dependence, spatial dependence

JEL Classification: C21, C23

Suggested Citation

Holly, Sean and Pesaran, M. Hashem and Yamagata, Takashi, Spatial and Temporal Diffusion of House Prices in the UK. IZA Discussion Paper No. 4694, Available at SSRN: https://ssrn.com/abstract=1545121

Sean Holly (Contact Author)

University of Cambridge - Department of Applied Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom
+44-1223-335251 (Phone)

M. Hashem Pesaran

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

Takashi Yamagata

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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