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

45 Pages Posted: 3 Feb 2010 Last revised: 4 Feb 2013

See all articles by Giorgio Canarella

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics; University of Nevada, Las Vegas

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Stephen K. Pollard

TUI University

Date Written: December 24, 2010

Abstract

This paper employs linear and nonlinear unit-root tests to investigate: a) the price dynamics of the home price indices included in the S&P/Case-Shiller Composite10 index, and b) the validity of the “ripple effect,” following the approach outlined in Meen (1999). In general, the findings lack uniformity and depend upon the assumptions imposed by the testing procedures. The tests that assume structural stability and linear adjustment fail to provide evidence in favor of stationarity in the price dynamics of all series. Conversely, the nonlinear test of Kapetanios, Shin and Snell (2003) provides evidence that the price dynamics of Los Angeles and San Francisco follows a nonlinear stationary process. The Lumsdaine and Papell (1997) and Lee and Strazicich (2003) tests indicate that significant structural breaks exist in all series. However, whereas the Lumsdaine-Papell test finds evidence of broken-trend stationarity only in the price dynamics of Las Vegas, the Lee-Strazicich test finds that the price dynamics of Miami and San Diego also exhibit broken-trend stationarity. The tests of the “ripple effect” also display conflicting evidence. The tests that assume structural stability and linear adjustment provide partial evidence in favor of the “ripple effect” in the case of Chicago and Denver, while the nonlinear test finds that the “ripple effect” is present in Boston, Denver, Miami, New York, San Diego, and San Francisco. The Lumsdaine-Papell test provides no evidence in favor of the “ripple effect”. Conversely, the Lee-Strazicich test finds broken-trend stationarity in the case of Boston, Miami, and New York.

Keywords: House-price indexes, Time-series properties, “Ripple” effects

JEL Classification: G10, C30, C50

Suggested Citation

Canarella, Giorgio and Miller, Stephen M. and Pollard, Stephen K., Unit Roots and Structural Change: An Application to US House-Price Indices (December 24, 2010). Urban Studies, 49(4), March 2012. Available at SSRN: https://ssrn.com/abstract=1546748

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics ( email )

Los Angeles
Los Angeles, CA 90032
United States

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Stephen M. Miller (Contact Author)

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

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Stephen K. Pollard

TUI University ( email )

5665 Plaza Dr., 3rd Floor
CA, 90630
Cypress, CA 90630
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
139
Abstract Views
746
rank
214,786
PlumX Metrics