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Determinants of Land-Price Movements in Japan

March 2007
Koichiro Kamada*1
Wataru Hirata*2
Hajime Wago*3

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The purpose of this paper is to apply spatial econometrics, a new statistical tool that has recently attracted much attention, to Japanese land-price data and investigate how land-price movements are determined in Japan. A strong emphasis is put on measuring the degree of spatial correlation of land prices, the phenomenon whereby one area's land prices are correlated with another area's land prices just because the two areas are adjacent to each other. To explore this issue, we compile regional data on land prices in the 47 prefectures in Japan and in the 23 wards in Tokyo. Japanese land prices are shown to display a high degree of spatial correlation not only at the ward level, but also at the prefecture level. We also investigate the plausibility of the claim that price formation in the Japanese land market has become more dependent on economic fundamentals since the asset bubble burst in the early 1990s. We show that although this claim may hold in commercial areas in Tokyo, there is no robust evidence that it holds for the rest of Japan.

We thank the participants in the Hitotsubashi Conference on Econometrics for their helpful comments. We also thank Yumi Saita (Research and Statistics Department, the Bank of Japan) and Toshitaka Sekine (the Bank of Japan, currently seconded to the Bank for International Settlements) for sharing with us the program for transforming land-price data and for their detailed instructions concerning data handling. We also thank Kazuhiko Kakamu (the Institute of Advanced Studies) for his excellent explanation of the program which forms the basis of the various model extensions introduced in our paper. Any remaining errors belong to the authors. Similarly, the views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Japan or the Monetary Affairs Department.

  • *1 Monetary Affairs Department, Bank of Japan
  • *2 Bank of Japan (currently Boston College)
  • *3 Graduate School of Economics, Nagoya University


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