Kiyohiko G. Nishimura

Biases in appraisal land price information: the case of Japan

Purpose – This paper seeks to investigate the nature and magnitude of the distortion in appraisal land price information according to change in the market, with a special focus on the Governments Published Land Prices.Design/methodology/approach – In Japan, there is an item of land price information, so‐called Koji‐Chika (PLPS: Published Land Price Information System), that is a survey of fair market value by the qualified appraisers. The valuation error of this land price information was analyzed using the following method. First, hedonic price indices were constructed based on both actual transaction prices and the Published Land Prices, they were then compared to detect possible distortions in the governmental price information. Also the possibility of structural change in the Japanese real estate markets was studied and its effect on price indices was considered. Analysis of the Tokyo metropolitan area in Japan took place between 1975 and 1999Findings – Large and systematic discrepancies between actu...

Housing Prices in Tokyo: A Comparison of Hedonic and Repeat Sales Measures

Summary Do indexes of house prices behave differently depending on the estimation method? If so, to what extent? To address these questions, we use a unique dataset that we compiled from individual listings in a widely circulated real estate advertisement magazine. The dataset contains more than 470,000 listings of housing prices between 1986 and 2008, including the period of the housing bubble and its burst.We find that there exists a substantial discrepancy in terms of turning points between hedonic and repeat sales indexes, even though the hedonic index is adjusted for structural changes and the repeat sales index is adjusted in the way Case and Shiller suggested. Specifically, the repeat sales measure signals turning points later than the hedonic measure: for example, the hedonic measure of condominium prices bottomed out at the beginning of 2002, while the corresponding repeat sales measure exhibits a reversal only in the spring of 2004. This discrepancy cannot be fully removed even if we adjust the repeat sales index for depreciation.

Structural and temporal changes in the housing market and hedonic housing price indices

Purpose – An economic indicator faces two requirements. It should be reported in a timely manner and should not be significantly altered afterward to avoid erroneous messages. At the same time, it should reflect changing market conditions constantly and appropriately. These requirements are particularly challenging for housing price indices, since housing markets are subject to large temporal/seasonal changes and occasional structural changes. The purpose of this paper is to estimate a hedonic price index of condominiums of Tokyo, taking account of seasonal sample selection biases and structural changes in a way it enables us to report the index in a manner which is timely and not subject to change after reporting.Design/methodology/approach – The paper proposes an overlapping‐period hedonic model (OPHM), in which a hedonic price index is calculated every month based on data in the “window” of a year ending this month (this month and previous 11 months). It also estimates standard hedonic housing price in...

Optimal Pricing Strategy in the Case of Price Dispersion: New Evidence from the Tokyo Housing Market

In the wake of recent pronounced cycles in housing, substantial media and professional debate have focused on house price determination, and in particular, optimal seller pricing strategies. In this paper, we adopt a multistage search model, in which the home seller’s reservation price is determined by her opportunity cost, search cost, discount rate, and additional market parameters including the anticipated offer arrival rate and the offer price distribution. The optimal asking price is chosen so as to maximize the return from search. Theoretical results indicate that a greater dispersion in offer prices leads to higher reservation and optimal asking prices, which in turn result in a higher expected transaction price. Under the assumption that offer prices are normally distributed, a higher dispersion of offer prices also reduces time on the market for overpriced properties. A unique dataset from the Tokyo condominium re-sale market enables us to test those modeled hypotheses. Empirical results indicate that the standard deviation of transaction prices for each submarket, a proxy of offer price dispersion, is an important determinant of both pricing strategy and pricing outcomes. A one percentage point increase in the standard deviation of sub-market transaction prices results in a two-tenths of a percent increase in the initial asking price and in the final transaction price. Although overpriced properties stay on the market longer, increases in the dispersion of market prices enhance the probabilities of a successful transaction and/or an accelerated sale. Moreover, less well-informed sellers are more likely to list their properties at significantly higher prices and later reduce their list price. Those properties stay on the market longer and sell at about a three percent discount relative to the properties of better-informed sellers.

Financial System Stability and Market Confidence

This paper first explains why the financial crisis of 200708 started in the United States, in particular, in the sub-prime mortgage market, a periphery of their financial markets. Agency problems in complex securitization and investors responsibility avoidance behavior are argued to be key factors in the sub-prime mortgage meltdown. It then examines the collapse of global financial markets and the erosion of market confidence that followed, and measures taken by governments and central banks to save the financial system. Finally, the paper explores possible safety nets that may prevent another financial crisis: private-sector capital insurance, publicprivate partnership capital insurance (a version of catastrophe insurance), and contingent capital.

*Incomplete Financial Markets, Irreversibility of Investments and Fiscal and Monetary Policy Instruments

In this paper, we analyse the use of fiscal and monetary instruments to improve long-run welfare when productive investment is irreversible and uncollateralizable and there is no insurance. Only fiat money or government issued bonds provide self-insurance. We demonstrate that an increase in precautionary savings reduces irreversible productive investment. Hence, subsidies to promote productive but irreversible investment should be financed in such a way that they do not reduce insurance capability. When lump-sum subsidies are high, a consumption tax is likely to be more redistributive and thus more consumption smoothing than are the other sets of instruments analysed in our model.

The New Policy Framework of the Bank of Japan: Central Banking in an Uncertain World

When the Bank of Japan ended its Quantitative Easing Policy on 9 March 2006, it also issued a document entitled The Introduction of a New Framework for the Conduct of Monetary Policy to explain its policy stance. Fundamental uncertainty (the existence of unknown unknowns) is the most important consideration in this New Policy Framework. The Framework has two basic principles: a Two-Perspective Strategy and the collective wisdom of agreeing to disagree.