Evidence and Implications of Regime Shifts: Time-Varying Effects of the U.S. and Japanese Economies on House Prices in Hawaii

Authors

John Krainer

James A. Wilcox

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2011-24 | July 1, 2012

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 U.S. and Japan varied over time

Article Citation

Wilcox, James A., and John Krainer. 2011. “Evidence and Implications of Regime Shifts: Time-Varying Effects of the U.S. and Japanese Economies on House Prices in Hawaii,” Federal Reserve Bank of San Francisco Working Paper 2011-24. Available at https://doi.org/10.24148/wp2011-24