RESIDENTIAL HEDONIC MODELS - A RATIONAL-EXPECTATIONS APPROACH TO AGE EFFECTS

This paper develops a rational expectations framework for interpreting the coefficient on age in a standard hedonic model. The model demonst rates that there are two components to the age coefficient: a pure cro ss-sectional depreciation component and a demand-side component that c hanges over time. We also show that a constant quality price index wit h age constant can be estimated by using any repeat sales database tha t contains the year of construction (or property age). When Fairfax Co unty data are fitted to the model, the time series of age coefficients is non-stationary: they change from negative in the early 1980s to po sitive in the late 1980s; we infer that the demand-side component domi nated in the latter period, (C) 1998 Academic Press.