International Real Estate Review

Asset prices and fundamentals can move apart, as is the case during bubble episodes. However, they should exhibit a stable relationship in the long run. For UK housing, previous studies have investigated whether house prices share a long run relationship with income. Results thus far have not yet found such stability in the interaction of the two variables. These previous papers have imposed linear adjustment on the relationship. Nonlinear adjustment, however, has been shown to be a feature in a number of housing market relationships. In this study, we utilize a data set that consists of home prices relative to first time buyer income for the UK and its twelve constituent regions, which gives us a direct measure of affordability. We test for the stationarity of the home price/first time buyer income ratio with linear tests, and, as in past studies, fail to find a long run relationship. However, we then employ a nonlinear test, and find a stationary relationship for the UK and seven of the twelve regions. In particular, the regions closest to London appear most clearly to have a stationary relationship between home prices and income.

Policy Uncertainty and the Demand for Money in Japan

In an attempt to establish stability of the demand for money, some recent studies have included the volatility of the money supply and output to account for uncertainty. In this paper we consider the experience of Japan but rather than including an uncertainty measure related to money supply and output, we include a relatively more comprehensive measure known as Economic Policy Uncertainty. When we included this later measure, we were unable to find a stable money demand in Japan. However, when we introduced the nonlinear adjustment of policy uncertainty, we not only found a stable money demand but also meaningful estimates. Since the approach allows us to assess asymmetries, we found that in Japan the public hold more cash when there is an increase or a decrease in uncertainty.