A long-term analysis of regional housing markets and inflation

This paper reexamines the relationship between inflation and residential pr operty over a 30-year period. Using conventional OLS models and cointegrati on and causality models we examine regional markets in the United Kingdom. The OLS tests provide little evidence of a consistent and stable relationsh ip, with large variations in the results between different regions. The coi ntegration results, and in particular those obtained using the Engle-Grange r procedure, provide strong evidence to support the hypothesis that housing and inflation are cointegrated. Additionally, the causality results provid e strong evidence to support the hypothesis that housing leads inflation. ( C) 2000 Academic Press.