THE ECONOMIC VALUE OF PROTECTING INVENTORIED ROADLESS AREAS: A SPATIAL HEDONIC PRICE STUDY IN NEW MEXICO

The objective of this paper is to examine the off‐site benefits, as capitalized into housing values, of protecting 1.6 million acres of Inventoried Roadless Areas (IRAs) in the state of New Mexico, United States. In light of petitions filed by various U.S. states to maintain the status of IRAs as roadless lands, spatial hedonic price models are estimated and used to calculate the implicit value of IRAs in New Mexico. Findings show that a two‐stage least squares (2‐SLS), robust spatial‐lag model is the most appropriate econometric representation of the hedonic price function, and that IRA lands are a significant and positive determinant of house value. After controlling for the presence of Wilderness Areas (WAs) and other characteristics, results indicate that, on average, there is a 5.6% gain in the property value of a house from being located in, or adjacent to, a Census tract with IRAs. In the aggregate, this gain represents 3.5% of the value of all owner‐occupied units in New Mexico ($1.9 billion in capitalized value, or an annualized value in perpetuity of $95 million, assuming a 5% interest rate). (JEL R22, H40, Q51, C21)     

A LANDFILL CLOSURE AND HOUSING VALUES

The United States disposes roughly 60% of the municipal solid waste it generates each year in solid waste disposal facilities, commonly known as landfills. Hedonic pricing studies have estimated the external costs of landfills on neighboring housing markets, but the literature is silent on what happens to property values after the landfill closes. Original housing price data collected both before and after a landfill closure are used to estimate how a landfill closure affects neighboring property values. Results of both a hedonic pricing model and a repeat-sales estimator are used in the analysis. ( JEL H42, H72, Q51, Q53, R21)     

THE PECULIAR ECONOMICS OF HOUSING BUBBLES

Home values increase rapidly during housing bubbles generating large capital gains. High loan‐to‐value (LTV) mortgages secured by expected future home values are one way to take advantage of these capital gains. In this article, we use a simple partial equilibrium consumer theory model to explore the implications of high LTV borrowing. We find that sufficiently large expected house price growth leads to an upward‐sloping budget line when households can obtain high LTV mortgages. In this environment, the demand for housing fits neither the conventional theories of consumer goods nor that of investment goods. In fact, increases in the expected future price of housing may reduce current housing demand, whereas decreases in the effective (current) price may lead to households buying smaller homes. Moreover, high LTV loans reduce the effectiveness of monetary policy, but raise the volatility of aggregate demand. Tighter borrowing standards may help lower demand volatility at the expense of shrinking the economy. (JEL E21, R21, E52)     

IS HISPANIC POPULATION DISPERSION INTO RURAL COUNTIES CONTRIBUTING TO LOCAL ECONOMIC GROWTH?

In the 1990s, rural counties in the United States, which had been losing population, became the destinations for an increasing number of Hispanics, slowing and in some cases reversing population declines. In this paper, we examine whether faster growth in the Hispanic population is linked to faster growth in income per capita in rural counties. Our results indicate strong support for the hypothesis that population growth caused by the increase in Hispanics, whether from international immigrants, migrants from within the United States, or from natural growth in families, has fueled increased economic growth in those small, rural communities whose populations had been in decline during the 1970s or the 1980s. (JEL J15, J61, R11)     

DETERMINANTS OF FINANCIAL DISTRESS IN LARGE FINANCIAL INSTITUTIONS: EVIDENCE FROM U.S. BANK HOLDING COMPANIES

We investigate determinants of financial distress in large financial institutions based on the Distance‐to‐Default and Z‐Scores measures. Using data of U.S. bank holding companies (BHCs), we find that the housing price index is a consistently significant factor across all BHCs and the non‐performing loan ratio is the most powerful indicator for financial distress. Short‐term wholesale funding is also a reliable default risk indicator. We additionally find that all the three regulatory capital requirements are very important for controlling default risk, particularly in the post‐crisis period. (JEL C53, G14, G21, G28)     

The out-of-sample forecasting performance of nonlinear models of regional housing prices in the US

This article provides out-of-sample forecasts of linear and nonlinear models of US and four Census subregions’ housing prices. The forecasts include the traditional point forecasts, but also include interval and density forecasts, of the housing price distributions. The nonlinear smooth-transition autoregressive model outperforms the linear autoregressive model in point forecasts at longer horizons, but the linear autoregressive and nonlinear smooth-transition autoregressive models perform equally at short horizons. In addition, we generally do not find major differences in performance for the interval and density forecasts between the linear and nonlinear models. Finally, in a dynamic 25-step ex-ante and interval forecasting design, we, once again, do not find major differences between the linear and nonlinear models. In sum, we conclude that when forecasting regional housing prices in the United States, generally the additional costs associated with nonlinear forecasts outweigh the benefits for forecasts only a few months into the future.     

Measuring persistence of U.S. city prices: new evidence from robust tests

This article revisits the empirical analysis in Cecchetti et al. (Int Econ Rev 43:1081–1099, 2002) involving long-span U.S. city prices, who estimated the persistence of U.S. price differentials to be around 9 years. After controlling for the structural breaks in the data, we find that U.S. city price level differentials are I(0) stationary processes with the median half-life of convergence ranged between 1.5 and 2.6 years, estimates that are in accordance with what should be expected from a highly integrated economy as the United States. Our results are also robust to a pairwise test of price level convergence.     

Inflation and the Dispersion of Relative Prices: A Case for 4 % Solution

Unlike earlier literature that documented positive association between inflation and the dispersion of relative prices over time, the empirical evidence from this study suggests that the relative price dispersion increases in response to the deviation of inflation from certain threshold/target level in either direction rather than inflation per se. The striking feature of the empirical evidence from United States and Japan is that the inflation rate at which the dispersion of relative prices is minimised turn out to be 4%; hence, supporting the proposal of 4% inflation target for both the countries.     

Rent Control and Prices of Owner-occupied Housing

We examine the relation between rent control and prices of owner-occupied housing in the presence of different qualities of housing. While a rent ceiling and the price of condominiums are substitutes if housing is undifferentiated, it is shown that this is not necessarily the case when housing differs in quality. A complete dismantling of rent control may in fact increasethe price of condominiums.
JEL Classification D45; D49; R21     

Credit unions during the crisis: did they provide liquidity?

We use the consumer finance monthly national survey to demonstrate that credit unions (CUs) in the United States did little to help consumers obtain a home equity line of credit (HELOC) during the recent financial crisis. Our results hold after including a two-stage regression structure using the availability of CUs as the identifying instrument, as well as employing a Heckman correction procedure to adjust for sample selection bias. We find that during the financial crisis, CUs were no more likely than other depositary institutions to extend HELOCs either in areas experiencing housing price declines or to lower income households. Our results provide an empirical counterpoint to those who have lauded CUs for providing liquidity during times of crisis or for serving consumers who would otherwise be challenged to obtain funds.     

Financial liberalization and short-run housing price dynamics

We develop a continuous time, rational expectations, multi-cohort model of an exchange economy with housing, the purchase of which is subject to a down payment (DP) constraint. The timing of the house purchase decision is a crucial endogenous variable, and four determinants of it are identified – the housing services effect, the interest discounting effect, the consumption smoothing effect, and the rate of price increase effect. Cohort effects, and supply constraints, play crucial roles at the aggregative level. We explore in detail the effects of a discrete financial liberalization, and show that if the liberalization is not announced sufficiently far in advance, housing prices will initially overshoot the new stationary equilibrium, and vice versa. Particular attention is paid to the possibility that for a subset of cohorts along the transition path the DP constraint will not bind. An interesting ‘Prisoners’ Dilemma’ is also identified, and policy implications discussedJEL Classification Numbers: E3, R21Valuable comments and suggestions from Phillip Brock, Ho Kong-Weng, Liu Haoming, David McKenzie, David Miles, Jacques Olivier, Phang Sock-Yong, J. Thampapillai, Ping Wang, Wong Wing-Keung, and Zeng Jinli are gratefully acknowledged. I am also immensely indebted to an anonymous referee, whose incisive, deep and patient comments, on successive drafts, helped greatly to sharpen and improve the paper, as well as to the Editor and the Co-Editor, Professor Mordecai Kurz, for their invaluable advice and encouragement. An earlier version was presented at a Conference in Honour of Ronald McKinnon, held at Stanford University in June 2002     

DOES APPRECIATION OF THE RENMINBI DECREASE IMPORTS TO THE UNITED STATES FROM CHINA?

In 2005, China abated its fixed exchange rate against the U.S. dollar and began to appreciate the Renminbi (RMB). In this paper, I explore the effect of the appreciation of the RMB on imports to the United States from China by augmenting the gravity model with the exchange rate. Using an industrial panel data set during the period 2002–2008 and controlling for the endogeneity of the bilateral exchange rate, this extensive empirical analysis suggests that the appreciation of the RMB against the U.S. dollar significantly reduced imports to the United States from China. This finding is robust to a variety of econometric methods and to coverage in different periods. (JEL F1, F2)     

HOUSING MARKETS AND THE GLOBAL FINANCIAL CRISIS: THE COMPLEX DYNAMICS OF A CREDIT SHOCK

We analyze the multiple channels of influence that global financial crisis‐induced credit restrictions had on New Zealand's subnational housing markets. The dynamics caused by the credit shock are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables, house prices and housing supply, within a structural time series model of regional housing markets. Both shocks cause substantial and prolonged cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macroprudential policies designed to affect bank credit allocation. (JEL E32, E44, R21)     

On Interregional Price Differentials

It is often observed that the land value is extremely high in very big cities while commodity prices are not. The objective of this paper is to consider interregional price differentials in a microeconomic framework by explicitly incorporating land for housing, and to conduct an empirical analysis of the interregional differential indices. It is revealed that across regions the CPI varies slightly, per capita income varies more, the housing rent varies still more and the land value varies the most in Japanese cities. I provide microeconomic reasons for the differences in these differentials.
JEL Classificiation Numbers: R00, R10.     

STILL “SAVING BABIES”? THE IMPACT OF CHILD MEDICAID EXPANSIONS ON HIGH SCHOOL COMPLETION RATES

The decoupling of child Medicaid from the cash welfare system greatly increased access to public health insurance for low‐income children in the United States. In this paper, I show that the federally mandated public health insurance expansions of the late‐1980s and early‐1990s significantly increased the number of public high school completers in the 2000s. Using the legislated generosity of a state's child Medicaid program as a time‐varying, exogenous source of variation in a quasi‐experimental design, I find substantively large declines in the dropout rate and, importantly, large increases in traditional 4‐year graduation rates. Results for both measures are driven by Hispanic and White students, the two groups experiencing the greatest within‐group increases in eligibility due to the decoupling of child Medicaid from the Aid to Families with Dependent Children program. In addition, I find evidence that increases in the length of childhood years covered (e.g., through age 5 vs. through age 17) leads to greater gains in completion rates. This suggests that public health insurance coverage throughout childhood produces the largest effect. (JEL C23, H51, H52, H75, I21)     

PHYSICIANS' COST SHIFTING BEHAVIOR: MEDICAID VERSUS OTHER PATIENTS

Much of the debate about rising health care costs in the United States centers on the notion of "cost shifting." Cost shifting is loosely defined as charging one set of patients a higher price to offset losses on another set of patients. One aspect of the cost shifting debate that the empirical work has ignored is whether or not doctors—as opposed to hospitals—practice cost shifting. The analysis here investigates this question using the Physicians' Practice Costs and Income Survey, 1983–1985 (PPCIS, expanded version)
Using variation across states in Medicaid reimbursements, the analysis finds that lower Medicaid reimbursements tend to lower the fees physicians charge, contradicting the standard cost shifting story. Evidence also suggests that lower Medicaid reimbursements tend to cause physicians to treat fewer Medicaid patients. These results are consistent with profit maximizing behavior for physicians and also with the hypothesis that physicians exert some monopoly power.     

Calling Patterns and Usage of Residential Toll Service under Self Selecting Tariffs

Using a nested logit model, we empirically show how self-selecting tariffs with basic and OCP (Optional Calling Plan) service options affect households' calling patterns and usage of interstate toll service in the United States. We find, first, that households are more sensitive to price declines than to price increases in terms of both consumption and expenditures. Second, households respond more sensitively to OCP price changes than to basic service price changes. Third, consumption changes are more sensitive than expenditures, indicating that households adjust their calling patterns or service options so as to keep expenditures on telephone bills relatively constant.     

A note on the hidden risk of inflation

The continued expansionary policy of the Federal Reserve gives rise to speculation whether the Fed will be able to maintain price stability in the coming decades. Most of the scientific work relating money to prices relies on broad monetary aggregates (i.e. M₂ for the United States). In our paper, we argue that this view falls short. The historically unique monetary expansion has not yet fully reached M₂. Using a cointegration approach, we aim to show the hidden risks for the future development of M₂ and correspondingly prices. In a simulation analysis we show that even if the multiplier remains substantially below its pre-crisis level, M₂ will exceed its current growth path with a probability of 95%.     

THE PUZZLING DIVERGENCE OF RENTS AND USER COSTS, 1980–2004

This paper demonstrates that, in the context of U.S. housing data, rents and ex ante user costs diverge markedly—in both growth rates and levels—for extended periods of time, a seeming failure of arbitrage and a puzzle from the perspective of standard capital theory. The tremendous volatility of even appropriately‐smoothed ex ante annual user cost measures implies that such measures are unsuitable for inclusion in official price statistics. The divergence holds not only at the aggregate level, but at the metropolitan‐market level as well, and is robust across different house price and rent measures. But transactions costs matter: the large persistent divergences did not imply the presence of unexploited profit opportunities. In particular, even though detached housing is readily moved between owner and renter markets, and the detached‐unit rental market is surprisingly thick, transactions costs would have prevented risk‐neutral investors from earning expected profits by buying a property to rent out for a year, and would have prevented risk‐neutral homeowners from earning expected profits by selling their homes and becoming renters for a year. Finally, computing implied appreciation as a residual yields a house price forecast with huge errors; but either longer‐horizon or no‐real‐capital‐gains forecasts—which turn out to have similar forecast errors—imply a far less divergent user cost measure which might ultimately be useful for official price statistics. Some conjectures are offered.     

Modelling the housing market in OECD countries

Recent episodes of housing bubbles, which occurred in several economies after the burst of the United States housing market, suggest studying the evolution of housing prices from a global perspective. We utilise a theoretical model for the purposes of this contribution, which identifies the main drivers of housing price appreciation, such as, for example, income, residential investment, financial elements, fiscal policy and demographics. In a second stage of our analysis, we test our theoretical hypothesis by means of a sample of 18 OECD countries from 1970 to 2011. We employ the vector error correction econometric technique in terms of our empirical analysis, which permits us to model the long-run equilibrium relationship and the short-run dynamics, which also helps to account for endogeneity and reverse causality problems.