The ripple effect of local house price movements in New Zealand

Abstract

Utilising a selection of 10 urban area data sets in New Zealand for the period 1994–2004, we examine local house price co‐movements by using various house price indexing approaches, at a monthly level. Applying the Granger causality test based on a vector error correction model (VECM), where seasonality is considered by using seasonal dummy variables, we found in the long run that the ripple effect is most likely constrained within regions. There is little evidence to suggest that the ripple effect will spread nationally between main regional centres. The results support the theory that the ripple effect is likely to be caused by a region’s internal economic factors rather than migration and spatial arbitrage.

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