A wavelet analysis of the ripple effect in UK regional house prices
Keywords:
Wavelet coherence, Ripple Effect, House Prices
Abstract
The paper aims at gaining insights on the Spatio-temporal mechanism of house price spillovers, also known as a ripple effect, among 12 UK regional housing markets, over the period 1973 - 2018. From a policy perspective, it is essential to discriminate if the effects of a shock decay more slowly along the geographical dimension as compared to the decay along the time dimension. We enter the debate in a novel manner, by using some wavelet analysis tools (wavelet coherence and phase differences amongst others), which reveal the spectral characteristics of a series and show how different periodic components of the prices evolve over time. Results are interesting. Price spillovers from London to other markets are detected both at business cycle frequencies and in the long run for those regions closer to London. More distant regions price changes lead London market only in the short run and for selected time spans; however, in the long run, London remains the dominant market.
References
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Kummerow, M., and J. C. Lun, (2005), Information and Communication Technology in the Real Estate Industry: Productivity, Industry Structure and Market Efficiency, Telecommunications Policy, 29: 173–190.
Kyriazakou, E., and T. Panagiotidis (2014), Linear and Non-Linear Causality in the UK Housing Market: a Regional Approach, Economics andBusiness Letters,3 (4): 288–297.
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Muelbauer, J., and A. Murphy, (1997), Boom and Bust in the UK Housing Market, The Economic Journal,107 (445): 1701–1727.
Panagopoulos, Y. and P. Vlamis, (2009), Bank Lending, Real Estate bubbles and Basel IIJournal of Real Estate Literature, 17 (2): 295–310.
Pesaran, H. M., (2007), A pair-wise approach to testing for output and growth convergence, Journal of Econometrics, 138: 312-–55.
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Pugh, C. and A. Dehesh, (2001), Theory and explanation in international property cycles since 1980, Property Management,19 (4): 265–297.
Torrence, C. and G.P. Compo (1998), A Practical Guide to Wavelet Analysis, Bulletin of the American Meteorological Society, 79 (1).
Tsay, I.C., (2020), Market Integration and Volatility Transmission i England’s Housing Markets,The Manchester School,88 (1): 119–155.
Aguiar-Conraria, L. and M.J. Soares (2014), The Continuous Wavelet Transform: Moving Beyond Uni and Bivariate Analysis, Journal of Economic Surveys, 28: (2) 344–375.
Aguiar-Conraria, L., N.Azevedo and M.J. Soares (2008), Using Wavelet to Decompose the Time-Frequency Effects of Monetary Policy, Physica A, 387: 2863–2878.
Alexander, C. and M. Barrow (1994), Seasonality and Cointegration of Regional House Prices in the UK, Urban Studies, 31: 1667–1689.
Alexander, C. (1993), On the changing relationship between productivity, wages and unemployment in the UK, Oxford Bulletin of Economics and Statistics,55: 87–102.
Antonakakis, N., Chatziantonuoiu, I.,Floros, C. and D. Gabauer (2018), The dynamic connectedness of UK regional property returns, Urban Studies, 55: (14) 3110–3134 .
Ashworth, J. and S. Parker (1997), Modelling Regional House Prices in the UK, Scottish Journal of Political Economy, 44: 225–246.
Carvalho, V.M and A. Harvey (2005), Growth, Cycles and Convergence in US Regional Time Series, International Journal of Forecasting, 21: 667–688.
Cook, S. and D. Watson,(2016), A New Perspective on the Ripple Effect in the UK Housing Market: Comovement, Cyclical Subsamples and Alternative Indices, Urban Studies, 53: (14) 3048—3062.
Diebold FX and K. Yilmaz, (2014), On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms, Journal of Econometrics, 182(1): 119-–134.
Elliot, G., Rothenberg, T. and J. Stock (1996), Efficient Testsfor an Autoregressive Unit Root, Econometrica,64: 813–836.
Cook, S. (2005), Detecting Long-Run Relationships in Regional House Prices in the UK, International Review of Applied Economics,19 (1): 107-–118.
Daubechies, I., (1992), ıTen Lectures on Wavelets, Society for Industrial and Applied Mathematics, Philadelphia.
Daubechies, I., (1988), Orthonormal Bases of Compactly Supported Wavelets, Communications in Pure and Applied Mathematics, 41, 909–996.
Drake, L., (1995), Testing for Convergence between UK Regional House Prices, Regional Studies, 29: 357—366.A wavelet analysis of the ripple effect in UK regional house prices 21
Gray, D., (2018), An Application of two Non-Parametric Techniques to the Prices of British Dwellings: An Examination of Cyclicality, Urban Studies, 55 (10): 2286-–2299.
Grinsted A., Moore j., and S. Jevrejeva (2004), Application of the Cross Wavelet Transform and Wavelet Coherence to Geophysical Time Series, Non-linear Processes in Geophysics 11 (5/6): 561-–566.
Guissani, B. and G. Hadjimatheou (1991), Modelling Regional House Prices in the United Kingdom, Papers in Regional Science, 70: 201–219.
Holly, S, Pesaran H. and T. Yamagata (2011), The Spatio-Temporal Diffusion of House Prices in the UK, Journal of Urban Economics, 69: (1) 2–23.
Holmans, A. (1990), House price: Changes through Time at National and Sub-national Level, Government Economic Service. Working Paper, 110, London, UK.
Holmes, M. J. and A. Grimes, (2008), Is There Long-Run Convergence Among Regional House Prices in the UK?, Urban Studies, 45: (8) 1531-–1544.
Kummerow, M., and J. C. Lun, (2005), Information and Communication Technology in the Real Estate Industry: Productivity, Industry Structure and Market Efficiency, Telecommunications Policy, 29: 173–190.
Kyriazakou, E., and T. Panagiotidis (2014), Linear and Non-Linear Causality in the UK Housing Market: a Regional Approach, Economics andBusiness Letters,3 (4): 288–297.
Kwiatkowski, D., Phillips, P., Schimdt, P. and Y. Shin (1992), Testing the Null of Stationarity against the Alternative of a Unit Root, Journal of Econometrics, 54: 159–178.
MacDonald, R. and M. Taylor,(1993), Regional House Prices in Britain: Long-Run Relationships and Short-run Dynamics, Scottish Journal of Political Economy, 40: 43—55.
Maraun, D. and J. Kurths, (2204), Cross Wavelet Analysis: Significance Testing and Pitfalls,Nonlinear Processes in Geophysics, 11: 505—514.
Meen, G., (1999), Regional House Prices and the Ripple Effect: A New Interpretation, Housing Studies, 14: (6) 733–753.
Muelbauer, J., and A. Murphy, (1997), Boom and Bust in the UK Housing Market, The Economic Journal,107 (445): 1701–1727.
Panagopoulos, Y. and P. Vlamis, (2009), Bank Lending, Real Estate bubbles and Basel IIJournal of Real Estate Literature, 17 (2): 295–310.
Pesaran, H. M., (2007), A pair-wise approach to testing for output and growth convergence, Journal of Econometrics, 138: 312-–55.
Pesaran, H. M., Smith, R. P., Yamagata, T. and L. Hvozdyk, (2009), Pair-wise tests of purchasing power parity, Econometric Reviews, 28: 495-–521.22
Lo Cascio I. Petersen, W., Holly, S. and P. Gaudoin, (2002), Further Work on an economic model of the demand for social housing, Report to the Department Regional House Prices in Britain: Long-Run Relationships and Short-run Dynamics, London.
Pugh, C. and A. Dehesh, (2001), Theory and explanation in international property cycles since 1980, Property Management,19 (4): 265–297.
Torrence, C. and G.P. Compo (1998), A Practical Guide to Wavelet Analysis, Bulletin of the American Meteorological Society, 79 (1).
Tsay, I.C., (2020), Market Integration and Volatility Transmission i England’s Housing Markets,The Manchester School,88 (1): 119–155.
Published
2020-07-24
Section
Economics
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
