Testing for overall and cluster convergence of housing rents using robust methodology: evidence from Polish provincial capitals.

Empirical Economics
Mateusz Tomal

Abstract

The aim of this paper is to test for overall and cluster convergence of housing rents across Polish provincial capitals and to identify drivers of convergence club formation. In order to achieve the goal of the study, several novel convergence tests were used, including the Kong et al. (J Econom 209:185-207, 2019. https://doi.org/10.1016/j.jeconom.2018.12.022) and Phillips and Sul (Econometrica 75:1771-1855, 2007. https://doi.org/10.1111/j.1468-0262.2007.00811.x) approaches. Moreover, club convergence analysis was carried out in four different configurations, varying in the technique of trend component extraction from the data. In particular, three well-known methods of time series decomposition were used, i.e. the Hodrick-Prescott, Butterworth and Christiano-Fitzgerald filters, as well as the most recent boosted Hodrick-Prescott filter. The results indicated that rental prices across the studied cities do not share a common path in the long run. It is possible, however, to identify convergence clubs where rents are moving towards a club-specific steady state. Detailed analysis of the structure of estimated clusters showed that data filtering using the boosted Hodrick-Prescott method leads to the most reliable allocation of cit...Continue Reading

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