Revisiting the relationship between farmland prices and rents in Japan with time‐varying vector autoregressions

Abstract Past studies of agricultural land prices and rents in Japan focused on the temporal relations characterizing price and rent dynamics. Several authors have shown that farmland prices respond to shocks to rents, but not vice‐versa. We revisit this relationship with a Bayesian time‐varying parameter vector autoregression (TVP‐VAR). The TVP‐VAR provides nuance by permitting the relationship between prices and rents to vary through time and allowing for stochastic volatility. Impulse response functions indicate that rents adjust to price shocks, but prices do not adjust to rent shocks. The TVP‐VAR suggests both changes in volatility and time variation in the lag coefficients.