Premium
Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis
Author(s) -
Jin Yi,
Leung Charles K.Y.,
Zeng Zhixiong
Publication year - 2011
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2011.00315.x
Subject(s) - economics , real estate , capitalization rate , volatility (finance) , liquidity premium , real estate investment trust , investment (military) , financial economics , monetary economics , risk premium , finance , politics , law , political science , market liquidity , liquidity crisis
This article studies the connection between the capital market and the real estate market. Empirically, we find that positive real house price shocks lower the external finance premium and stimulate nonresidential investment and real gross domestic product (GDP). Our theoretical framework is able to mimic the volatility of the external finance premium, the relative price of real estate and capital and the investment in real estate and capital. It also captures the cyclicality of the external finance premium and of real estate prices. The contribution of real estate price fluctuations to the variability of the external finance premium and the GDP is confirmed to be significant.