Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis
Real Estate Economics, Forthcoming
Posted: 17 Nov 2010
Date Written: November 16, 2010
Abstract
This paper 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 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.
Keywords: External Finance Premium, Residential and Corporate Real Estate, Capital Market Imperfections, Equilibrium Default, Real Estate Price Volatility
JEL Classification: E44, D82, R21, R31
Suggested Citation: Suggested Citation
Zhixiong Zeng
Monash University ( email )
Department of Economics
Monash University
Caulfield East, Victoria 3145
Australia
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