Abstract

This paper identifies instruments for house prices and foreclosure rates and estimates a Dynamic Spatial Simultaneous Equation System (DSSES) to investigate the dynamics of them across space and time. Shocks to the foreclosure rate in one state not only affect house prices in that state but also the foreclosure rates and house prices in nearby states. When it comes to the housing market, what happens in Vegas doesn’t always stay in Vegas. A one standard deviation foreclosure shock leads to a 2 percent decline in real house prices over the long run.

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