nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2009‒06‒10
twenty-one papers chosen by
Steve Ross
University of Connecticut

  1. Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy By Hajime Tomura
  3. Which Factors Capitalize into House Prices? A Bayesian Averaging Approach By David Stadelmann
  4. Housing’s Effects on Social and Ethnic Segregation and Gentrification in Vienna’s Ottakring By Blair Schaeffer
  6. Bank Integration and Local Credit Cycle:Evidence from Japan By Masami Imai; Seitaro Takarabe
  8. Social networks among indigenous peoples in Mexico By Skoufias, Emmanuel; Lunde, Trine; Patrinos, Harry Anthony
  9. Cointegration Analysis of Regional House Prices in U.S. By Zohrabyan, Tatevik; Leatham, David; Bessler, David
  10. The quality of public education and private school enrollment: an assessment using Brazilian data By Fernanda Estevan
  11. Transport Outlook 2009 (preliminary version): Globalisation, Crisis and Transport By OECD
  12. Addressing educational disparity : using district level education development indices for equitable resource allocations in India By Jhingran, Dhir; Sankar, Deepa
  13. Simulations du ratio du service de la dette des consommateurs en utilisant des données micro By Ramdane Djoudad
  14. Aspirations, Segregation and Occupational Choice By Dilip Mookherjee; Stefan Napel; Debraj Ray
  15. The Water and Sanitation Scenario in Indian Metropolitan Cities: Resources and Management in Delhi, Calcutta, Chennai, Mumbai By Joel Ruet
  16. Capital Inflows, Household Debt and the Boom-bust Cycle in Estonia By Zuzana Brixiova; Laura Vartia; Andreas Wörgötter
  17. Assessing the risk-return trade-off in loans portfolios By Javier Mencía
  18. The Impact of Ethanol Plants on Land Values in the Great Plains By Henderson, Jason; Gloy, Brent
  19. Neighbourhoods, economic incentives and post compulsory education choices By Lindvall, Lars
  20. Mind the gap ? a rural-urban comparison of manufacturing firms By Rijkers, Bob; Soderbom, Mans; Loening, Josef
  21. Common and spatial drivers in regional business cycles By Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk

  1. By: Hajime Tomura
    Abstract: This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect that future house prices will rise and this expectation is neither shared by savers nor realized ex-post. With sticky prices and a standard monetary policy rule, the model shows that the nominal policy interest rate and the CPI inflation rate decline during housing booms and rise as house prices fall. These results replicate the stylized features of housing-market boom-bust cycles in industrialized countries. Policy experiments demonstrate that stronger policy responses to inflation amplify housing-market boom-bust cycles. Also, higher loan-to-value ratios amplify housing-market boom-bust cycles by encouraging speculative housing investments by mortgage borrowers during housing booms and increasing liquidation of housing collateral during housing busts.
    Keywords: Credit and credit aggregates; Financial stability; Inflation targets
    JEL: E44 E52
    Date: 2009
  2. By: Leah Platt Boustan (UCLA and NBER); Robert A. Margo (Boston University and NBER)
    Abstract: How does the spatial distribution of employment opportunities influence residential location? We revisit this classic question in urban economics by exploiting a natural experiment generated by the history of state capitals. Many state employees in capital cities work in centrally located government buildings that were constructed in the nineteenth century, while state workers elsewhere mirror the decentralization of the private sector. We compare the work and residential locations of state workers in capital and non-capital cities relative to other workers in their metropolitan areas. Our results suggest that assigning 1,000 jobs to the central city would attract approximately 250 working residents to the city. Evidence from other industries with historically-determined locations, including the postal service and defense contractors, corroborates our basic finding.
    Date: 2008–12
  3. By: David Stadelmann
    Abstract: This paper investigates the robustness of 31 community speci?c explanatory variables for house prices in the Swiss metropolitan area of Zurich using Bayesian Model Averaging. The main variables which capitalize with a high posterior prob- ability are location speci?c real estate characteristics, municipal taxes and ex- penditures for culture, health and social services. Demographic as well as other socioeconomic controls seem to be of minor importance. The analysis suggests a minimal list of variables that may be included in any estimation for capitalization of community speci?c characteristics in the context of a metropolitan area in a highly developed country.
    Keywords: Capitalization; House Price Hedonic; Taxes; Model Uncertainity; Bayesian Model Averaging
    JEL: R21 C11 H40
    Date: 2009–05
  4. By: Blair Schaeffer
    Date: 2009–06–08
  5. By: Renee A. Fry; Vance L. Martin; Nicholas Voukelatos
    Abstract: A 7 variate SVAR model is used to identify the presence and causes of overvaluation in real house prices in Australia from 2002 to 2008. An important feature of the model is the development of a housing sector where long-run restrictions are derived from economic theory to identify housing demand and supply shocks. The empirical results show that real house prices were overvalued during the period, reaching a peak of nearly 20% by the end of 2003. Important factors driving the observed overvaluation are housing demand shocks prior to 2006, and macroeconomic shocks in the goods market post 2006. Wealth effects from portfolio shocks in equity markets are also found to be an important driver. The results also suggest that monetary policy is not an important contributing factor in the overvaluation of house prices.
    JEL: E21 E44 C32 R21
    Date: 2009–03
  6. By: Masami Imai (Department of Economics, Wesleyan University); Seitaro Takarabe
    Abstract: This paper investigates how the integration of local banking markets affects the credit and economic cycle of local economies by using both a data set on the branch network of nationwide city banks and a prefecture-level panel data set on the formation and collapse of the real estate bubble in Japan. The empirical results show that the presence of city banks does not seem to have lessened the effects of local financial shocks on local economies. On the contrary, we find evidence that nation-wide city banks aggressively transmitted financial shocks that originated from major cities to local peripheral economies. These results suggest a dark side of large nation-wide banks: they can be a source of financial and economic volatility when they elect to take concentrated risk and spread out the impacts of large financial shocks to peripheral economies.
    Date: 2009–06
  7. By: Jeremy Atack (Department of Economics, Vanderbilt University); Fred Bateman (University of Georgia, Department of Economics); Michael Haines (Colgate University, Department of Economics); Robert A. Margo (Boston University, Department of Economics)
    Abstract: For generations of scholars and observers, the "transportation revolution," especially the railroad, has loomed large as a dominant factor in the settlement and development of the United States in the nineteenth century. There has, however, been considerable debate as to whether transportation improvements led economic development or simply followed. Using a newly developed GIS transportation database we examine this issue in the context of the American Midwest, focusing on two indicators of broader economic change, population density and the fraction of population living in urban areas. Our difference in differences estimates (supported by IV robustness checks) strongly suggest that the coming of the railroad had little or no impact upon population densities just as Albert Fishlow concluded some 40 years ago. BUT, our results also imply that the railroad was the "cause" of midwestern urbanization, accounting for more than half of the increase in the fraction of population living in urban areas during the 1850s.
    Date: 2009–01
  8. By: Skoufias, Emmanuel; Lunde, Trine; Patrinos, Harry Anthony
    Abstract: This paper examines the extent to which social networks among indigenous peoples have a significant effect on a variety of human capital investment and economic activities, such as school attendance and work among teenage boys and girls, and migration, welfare participation, employment status, occupation and sector of employment among adult males and females. The analysis uses data from the 10 percent population sample of the 2000 Population and Housing Census of Mexico and an empirical strategy that allows taking into account the role of municipality and language group fixed effects. The authors confirm empirically that social network effects play an important role in the economic decisions of indigenous people, especially in rural areas. The analysis also provides evidence that better access to basic services, such as water and electricity, increases the size and strength of network effects in rural areas.
    Keywords: Population Policies,Access to Finance,Anthropology,Labor Policies,Housing&Human Habitats
    Date: 2009–06–01
  9. By: Zohrabyan, Tatevik; Leatham, David; Bessler, David
    Abstract: Using quarterly U.S. census division data for time period 1975-2006, this paper investigates the dynamic relationships among the house prices of nine divisions (regions): Pacific, Mountain, South Atlantic, Middle Atlantic, New England, East South Central, West South Central, West North Central, and East North Central. Johansenâs ML procedure is applied to shed light on the short-run and long-run components on the error correction model. Furthermore, a symmetric error-correction model is estimated followed by the contemporaneous causality structure that is provided by the directed acyclic graphs. The latter is used as an âinputâ for estimating the impulse response functions along with the forecast error variance decompositions. The results provide evidence of the presence of large number of cointegration relations between the regional house prices in the US. Moreover, in most cases, West North Central and New England appear to strongly and positively lead the house price changes in most other regions. The statement holds for Middle Atlantic which actually generates negative responses. On the other hand, house prices in East North Central and Mountain are highly influenced by changes in house prices of other regions. These results mostly hold for the dynamic period or from time horizon 0 (contemporaneous) to 35 (8.5 years). Furthermore, the real estate market in the US appears to be mainly led by regions that are influential in many other ways, such as financial, economic, etc.
    Keywords: Community/Rural/Urban Development, Financial Economics,
    Date: 2008
  10. By: Fernanda Estevan (PhD candidate, Department of Economics, CORE, Catholic University of Louvain)
    Abstract: In this paper, we test the hypothesis that private school enrollment is the households' response to the low quality of public schools. In order to deal with the simultaneity issue, we explore variations in public school funding caused by the FUNDEF reform that occurred in Brazil in 1998. Using data from the Brazilian School Census, we show that a positive impact of the reform is associated with an immediate reduction in the share of private enrollment for the first grade of primary school at the municipality level. The same effect is not observed for the subsequent primary school years. This con¯rms the intuition that the parents may be reluctant to switch schools after the beginning of their child's schooling track. Our estimation results are robust to variations in the school participation and changes in the income distribution. Thus, the improvement in the quality of public schools originated by the FUNDEF reform has attracted households that would otherwise enroll in private institutions. The same mechanism seems to explain the increase in the net attendance rate during the same period.
    Date: 2009–04
  11. By: OECD
    Abstract: This second ITF Transport Outlook continues building towards a full-fledged Transport Outlook, building upon the first Outlook (JTRC, 20081). The 2008 Outlook investigated the relation between expected GDP evolution and the demand for road transport, pointing out that transport demand and CO2-emissions could well turn out higher than commonly assumed given the projected evolution of GDP, and underlining the potential of improvements of fuel efficiency in controlling CO2-emissions from road transport. These topics were developed further in the “50 by 50 Global Fuel Economy Initiative”.2 The 2009 Outlook considers two themes that are closely linked to the International Transport Forums’s them for the 2009 meeting in Leipzig: Transport for a global economy – Challenges and opporturnities in the downturn. First, in Section 2, we focus on the evolution of GDP itself and how this evolution interacts with transport demand and investments in transport infrastructure. The analysis is a first brush at gauging the potential impacts of the economic and financial crisis. Specifically, we consider (a) the impact of the aggregate demand shock on the evolution of global GDP, (b) the need and potential for a rebalancing of global growth patterns, with their implications for trade and transport demand, and (c) the consequences of the widening funding gap for transport infrastructure investments. Second, in Sections 3 through 5, we discuss projections of the demand for road transport, aviation, and maritime transport. For road transport, more modest global growth leads to slower growth of the vehicle stock and of CO2-emissions, but the basic messages of the 2008 Outlook continue to hold. For aviation, we attempt to disentangle the effects of economic growth and of increased openness of markets on volume growth, and find that the latter is an important growth factor. For maritime transport, the focus is on likely development patterns and how they could be affected by the crisis, and how this does (not) affect recommendations for dealing with expected CO2-emissions.
    Date: 2009–06
  12. By: Jhingran, Dhir; Sankar, Deepa
    Abstract: The challenge of development work in the social sector in India today is one of bridging huge disparities across regions of the country, gender and social groups. Unless national and state policies specifically target resources to address these disparities, achieving higher level outcomes in an inclusive manner, which is the real goal for human development in education and health, will be a distant dream. This paper takes up the case of the Indian government’s Elementary Education for All Mission to understand how this flagship program relates investments to spatial and social disparities. For identifying the most deprived districts in terms of educational inputs, outputs and overall development, the authors estimate district level education development indices for 2003-2004. The contribution of the largest investment program is measured by"per child allocations"and expenditures at the state and district levels for 2005-2006. An analysis of comparing the ratio of allocations to expenditures with the ratio of district level indices to sub-dimensional indices shows that there is an apparent disconnect between the"real investment needs"of the districts, reflected in their level of educational development and the actual allocations made on an annual basis. The analysis shows that although all districts received more funds for investing in elementary education programs, the most disadvantaged and needy districts received proportionately more funds, which helped these districts to bridge access and infrastructure gaps and appoint more teachers. Benchmarking sector development by spatial entities helps not only in monitoring the outcomes, but also in targeting planning and funding to reduce disparities.
    Keywords: Primary Education,Education For All,Gender and Education,Access&Equity in Basic Education,
    Date: 2009–06–01
  13. By: Ramdane Djoudad
    Abstract: The author constructs a formal analytic framework to simulate the impact of various economic shocks on the household debt-service ratio, using data from the Canadian Financial Monitor (CFM) survey. The impact of these shocks on individual households depends on the socio-economic characteristics of the latter. The framework also allows consideration of both symmetric and asymmetric shocks to incomes. The author's work is original in several respects: it captures the heterogeneity of the impact of these shocks on households, it uses cross-sectional data to estimate credit-growth equations, and it determines household credit growth based on income, interest rates, and housing prices. To illustrate the usefulness of his approach, the author provides income, debt, and interest rate scenarios, and then simulates his model over twelve periods. This methodology can, of course, be used with other microdata.
    Keywords: Econometric and statistical methods; Financial stability
    JEL: C15 C31 D14 E51
    Date: 2009
  14. By: Dilip Mookherjee (Boston University); Stefan Napel (University of Bayreuth); Debraj Ray (New York University)
    Abstract: This paper examines steady states of an overlapping generations economy with a given distribution of household locations over a one-dimensional interval. Parents decide whether or not to educate their children. Such decisions are aected by location: parental aspirations depend on the earnings of their neighbors. At the same time, economy-wide wages endogenously adjust to bring factor supplies into line with demand. The model therefore combines local social interaction with global market interaction. The paper studies steadystate configurations of skill acquisition, both with and without segregation, and studies the macroeconomic and welfare effects of segregation on aggregate economic outcomes.
    Date: 2008–07
  15. By: Joel Ruet
    Abstract: This paper reviews the urban water and sanitation scenario in metropolitan cities. Section 1 focuses on the institutional and organizational structure of the service providers by looking at the level of technical and managerial decentralization reached in the four cities (Calcutta, Chennai, Delhi, Mumbai) Section 2 focuses on the question of property rights and the debate on usage conflicts in order to fill the gap for the future demand. Section 3 revisits the question of reforms that were launched in the 1990s for all infrastructure sectors. Section 4 and 5 concentrate on two directions the sector could look at for changes: the development of conservation based strategy and the need for a more participative approach by involving the civil society. This would mean a paradigm shift for the sector. Indeed, demand side solutions are rarely considered and the problem of water supply is mostly addressed by the supply angle.
    Keywords: Water supply, Sanitation, Chennai, Mumbai, Delhi, Calcutta, Resources management; Urban India; Potable water; Water demand; Metropolitan cities; Water harvesting; Sewage water treatment
    Date: 2009
  16. By: Zuzana Brixiova; Laura Vartia; Andreas Wörgötter
    Abstract: From 2000 to 2007, Estonia was one of the fastest growing emerging market economies. A housing boom, fuelled by capital inflows and credit, resulted in skyrocketing house prices and an over-expanded construction sector. However, the currency board limited the Bank of Estonia’s ability to curb credit growth, while the fiscal policy framework amplified the cycle through pro-cyclical spending increases and tax cuts. As credit was mostly financed by cross-border loans from foreign banks, the risks of disruptions to credit flows and financial contagion have increased. Some have already materialised through tightened lending standards and capital outflows. Estonia is now in a severe recession. To restore high and sustainable growth, the country will need to rebalance its resources from non-tradables towards exports. Regaining external competitiveness will be challenging, however, given the fixed exchange rate and recent devaluations in partner countries. Flexibility of the economy will thus be crucial. Over the medium term, policymakers could also strengthen incentives for a better functioning of the housing finance market and gradually remove the pro-cyclical bias of fiscal policy.<P>Entrée de capitaux, endettement des ménages et alternance expansion-contraction en Estonie<BR>Entre 2000 et 2007, l’Estonie a été l’une des économies de marché émergentes qui ont connu la plus forte croissance. Une rapide progression de l’investissement privé, surtout dans l’immobilier résidentiel, a été alimentée par les entrées de capitaux et par le crédit. En conséquence, les prix immobiliers se sont envolés et le secteur de la construction s’est surdéveloppé. Le système de caisse d’émission a toutefois limité les possibilités d’action qui s’offraient à la Banque d’Estonie pour freiner la croissance rapide du crédit. Parce que le crédit était essentiellement financé par les prêts transnationaux que consentaient les banques mères étrangères, les risques d’arrêt brutal et de contagion financière se sont aggravés. Certains de ces risques se sont déjà concrétisés par un durcissement des conditions de prêt et par des sorties de capitaux. L’Estonie est maintenant en proie à une sévère récession. Son PIB réel s’est contracté de 3.6 % en 2008 et de 9.7 % au quatrième trimestre par rapport à la même période de 2007. Pour en revenir à une croissance forte et durable, l’Estonie devra rééquilibrer ses ressources en favorisant l’exportation par rapport au secteur non exportateur (en particulier la construction et l’immobilier). Mais il sera difficile de rétablir la compétitivité extérieure sachant que le taux de change est fixe et que plusieurs pays partenaires ont récemment dévalué. La flexibilité de l’économie sera cruciale. A moyen terme, il faudrait aussi renforcer l’incitation à un meilleur fonctionnement du marché du financement du logement.
    Keywords: capital inflows, credit, crédit, household debt, endettement des ménages, boom-bust cycle, cycle expansion-contraction, Estonia, Estonie, entrées de capitaux
    JEL: C2 E3 E62
    Date: 2009–05–27
  17. By: Javier Mencía (Banco de España)
    Abstract: This paper analyses the risk and return of loans portfolios in a joint setting. I develop a model to obtain the distribution of loans returns. I use this model to describe the investment opportunity set of lenders using mean-variance analysis with a Value at Risk constraint. I also obtain closed form expressions for the interest rates that banks should set in compensation for borrowers' credit risk under absence of arbitrage opportunities and I use these rates as a benchmark to interpret actual loans' prices. Finally, I study the risk-return trade-off in an empirical application to the Spanish banking system.
    Keywords: Credit risk, Probability of default, Asset Pricing, Mean-Variance allocation, Stochastic Discount Factor, Value at Risk
    JEL: G21 G12 G11 C32 D81 G28
    Date: 2009–06
  18. By: Henderson, Jason; Gloy, Brent
    Abstract: Corn ethanol plants consume large amounts of corn and their location has the potential to alter local crop prices and surrounding agricultural land values. The relationship between ethanol plant location and agricultural land prices is examined using data obtained from the Agricultural Credit Survey administered by the Federal Reserve Bank of Kansas City. The findings indicate that the portion of land price changes attributable to location is consistent with previous estimates of basis changes associated with ethanol plant location. As a result, the land markets appear to be rationally adjusting to the location of ethanol plants.
    Keywords: farmland, ethanol, land values, Land Economics/Use,
    Date: 2008
  19. By: Lindvall, Lars (Department of Economics, Uppsala University)
    Abstract: There are large differences in income and education levels, unemployment and ethnic composition between neighbourhoods. An interesting question is whether a neighbourhood’s characteristics affect the behaviour of its residents. This paper investigates neighbourhood effects on youths’ post primary education choice. Besides including usual variables the paper also includes neighbourhood specific economic incentives. Estimating linear probability models as well as multinomial logit models using Swedish register data, covering the county of Stockholm and the years 1988–1992, I find that both neighbourhood characteristics and economic incentives affect the choice. For the latter the results are quite clear although the size of the effect is small: an increase in the expected income of an alternative increases the probability that this alternative is chosen. For the neighbourhood variables the results differ to some extent depending on the model. The proportion of individuals with at most compulsory education in a neighbourhood does however seem to have a negative effect on applying for a university preparatory programme. The proportion of immigrants in a neighbourhood tend to have a positive effect on immigrants’ probability to apply for a university preparatory programme.
    Keywords: Neighbourhoods; economic incentives; educational choice
    JEL: I20 I22 R19
    Date: 2009–05–17
  20. By: Rijkers, Bob; Soderbom, Mans; Loening, Josef
    Abstract: This paper compares and contrasts the performance of rural and urban manufacturing firms in Ethiopia to assess the impact of market integration and the investment climate on firm performance. Rural firms are shown to operate in isolated markets, have poor access to infrastructure and a substantial degree of market power, whereas urban firms operate in better integrated and more competitive markets, where they have much better access to inputs. Fragmentation may also help explain why urban firms are much larger, much more capital intensive and why they produce much more output per worker. Capital intensity and labor productivity are strongly correlated with firm size. Manufacturing technology choice does not vary strongly across space and increasing returns to scale are modest at best, suggesting that rural-urban differences in output per worker are predominantly driven by differences in capital intensity and Total Factor Productivity (TFP). The average TFP of firms in rural towns is much higher than that of rural firms in remote areas, but small firms in rural towns are not significantly less productive than small firms in other urban areas. A key finding of the paper is that market fragmentation and investment climate constraints impair the growth of the rural non-farm sector. Whereas urban firms exhibit a healthy dynamism, rural firms are stagnant and lack incentives to invest. Paradoxically, limited local demand due to market fragmentation is the most pressing constraint for rural firms, even though they face more severe supply-side constraints than urban firms. Promoting market towns in Ethiopia might be an effective means of capitalizing on the gains from market integration.
    Keywords: Access to Finance,Microfinance,Economic Theory&Research,,Debt Markets
    Date: 2009–06–01
  21. By: Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk
    Abstract: To shed light on changes in international inflation, this paper proposes an iterative procedure to discriminate between structural breaks in the coefficients and the disturbance covariance matrix of a system of equations, allowing these components to change at different dates. Conditional on these, recursive procedures are proposed to analyze the nature of change, including tests to identify individual coefficient shifts and to discriminate between volatility and correlation breaks. Using these procedures, structural breaks in monthly cross-country inflation relationships are examined for major G-7 countries (US, Euro area, UK and Canada) and within the Euro area (France, Germany and Italy). Overall, we find few dynamic spillovers between countries, although the Euro area leads inflation in North America, while Germany leads France. Contemporaneous inflation correlations are generally low in the 1970s and early 1980s, but inter-continental correlations increase from the end of the 1990s, while Euro area countries move from essentially idiosyncratic inflation to co-movement in the mid-1980s.
    Date: 2009

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