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Evidence and Implications of Regime Shifts: Time‐Varying Effects of the United States and Japanese Economies on House Prices in Hawaii
Author(s) -
Krainer John,
Wilcox James A.
Publication year - 2013
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/reec.12009
Subject(s) - economics , house price , volatility (finance) , lower house , stock (firearms) , stock market , monetary economics , economy , econometrics , parliament , politics , political science , law , mechanical engineering , paleontology , horse , biology , engineering
We show that local house prices may be driven almost entirely by the demands of one identifiable group for several years and then by demands of another group at other times. We present evidence that house prices in Hawaii were subject to such regime shifts. Prices responded to demands associated with U.S. incomes and wealth for most years from 1975 through 2008. For about a decade starting in the middle of the 1980s, after the Japanese yen appreciated dramatically and Japanese housing and stock market wealth soared, however, house prices in Hawaii responded to Japanese incomes and wealth. Estimated models with these regime shifts outperformed conventional, constant‐coefficient models. The regime‐shifting model helps explain why, when and by how much the volatility and the elasticities of house prices in Hawaii with respect to the incomes and wealth of the United States and Japan varied over time.