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A0269
Topic: Contributed on Asset price bubbles Title: Present value of houses: A state space approach Authors:  Dooruj Rambaccussing - University of Dundee (United Kingdom) [presenting]
Abstract: The time series of expected returns and expected rent growth are derived from a state space representation of the present value of houses. Expected returns are found to be persistent and time varying. Expected rent growth is less persistent, but far from stochastic. Both series are good predictors for realized returns and rent growth, and are marginally better predictors than a present value constrained VAR representation. Variance decompositions show that most of the variation in house prices is caused by variation in discount rates. On the other hand unexpected returns may be caused by news from both discount rates and rent growth.