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SERC/Urban and Spatial Programme Discussion Paper
Simulating Wages and House Prices Using the NEG
Bernard Fingleton
April 2009
Paper No' SERCDP0021:
Full Paper (pdf)

JEL Classification: C21; C31; O18; R12; R31

Tags: new economic geography; real estate prices; spatial econometrics

The paper incorporates house prices within an NEG framework leading to the spatial distributions of wages, prices and income. The model assumes that all expenditure goes to firms under a monopolistic competition market structure, that labour efficiency units are appropriate, and that spatial equilibrium exists. The house price model coefficients are estimated outside the NEG model, allowing an econometric analysis of the significance of relevant covariates. The paper illustrates the methodology by estimating wages, income and prices for small administrative areas in Great Britain, and uses the model to simulate the effects of an exogenous employment shock.