Fads versus Fundamentals in Farmland Prices

This paper develops an approach to decompose farmland price time series into three components: permanent fundamental component, temporary fundamental component, and nonfundamental component. This decomposition is useful for studying the importance of fundamental versus nonfundamental factors in explaining farmland price behavior and the dynamic response of farmland price to shocks to each of these components, among other issues. The approach is applied to annual Iowa farmland prices over the 1922-1994 sample period. 1