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Excess Returns, Inflation and the Efficiency of the Housing Market
Author(s) -
Gatzlaff Dean H.
Publication year - 1994
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00649
Subject(s) - economics , inflation (cosmology) , adaptive expectations , excess return , rational expectations , econometrics , monetary economics , inertia , real interest rate , monetary policy , paleontology , context (archaeology) , physics , theoretical physics , biology , classical mechanics
This paper examines the influence that unexpected inflation has on the reported time pattern in housing returns. Two alternative models of expected inflation are used to study its effect: a rational expectations model and an adaptive expectations model. Findings indicate that both estimates of unexpected inflation are positively correlated with excess returns to housing. If inflation expectations are assumed to have been adaptive during the 1970s and early 1980s, serial correlation in the excess returns is shown to be greatly diminished when adjusted to control for unexpected inflation. However, substantial inertia in the pattern of the adjusted return series remains.