Testing a Present Value Model of Agricultural Land Values.

This paper develops a present value model of agricultural land values and applies it to data from England and Wales. Augmenting a simple present value model to allow for inflation hedging yields a unique cointegrating vector that is consistent with the predictions of present value theory and suggests that land prices are highly responsive to changes in inflation in the long run. The dynamics of the corresponding error correction model are investigated and the long-run real rate of discount on land is estimated at 3.6 percent. Copyright 1994 by Blackwell Publishing Ltd