Land-Price Dynamics and Macroeconomic Fluctuations
Zheng Liu, Pengfei Wang, Tao Zha
Econometrica · 2013 · Volume 81 · Issue 3
Abstract
We argue that positive co-movements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the co-movements by incorporating two key features into a DSGE model: We introduce land as a collateral asset in firms' credit constraints, and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment.
Keywords
Land prices, co-movements, competing demand for land, collateral channel, reallocation channel
Enable JavaScript for citation tools and additional paper interactions.