COINTEGRATION ANALYSIS AND THE DETERMINANTS OF LAND PRICES

This paper outlines the concept of co-integration and its use in econometric modelling. The techniques of co-integration analysis are described, with particular emphasis given to test procedures. Co-integration between two or more variables is taken to imply the existence of a long-run equilibrium relationship between them. Co-integration analysis is applied in a re-examination of recent empirical models of the determination of land prices in England and Wales. The results suggest that recent land price models do not describe long-run relationships between land prices and the explanatory variables selected. Criticisms of the different measurements of returns to land used in studies to date are sustained by the analysis, and a clear role for interest rates in the determination of land prices is indicated.