Leveraged Property Cycles

62 Pages Posted: 23 Apr 2021

See all articles by Ivan Jaccard

Ivan Jaccard

European Central Bank (ECB) - Directorate General Research

Date Written: April, 2021

Abstract

This paper studies the effects of imperfect risk-sharing between lenders and borrowers on commercial property prices and leverage. The key friction is that agents use different discount rates to evaluate future flows. Eliminating this pecuniary externality generates large reductions in the volatility of real estate prices and credit. Therefore, policies that enhance risk-sharing between lenders and borrowers reduce the magnitude of boom-bust cycles in real estate prices. We also introduce health shocks to study the effect of the COVID-19 crisis on the commercial property market.

JEL Classification: E32, E44, G10, E23

Suggested Citation

Jaccard, Ivan, Leveraged Property Cycles (April, 2021). ECB Working Paper No. 2021/2539, Available at SSRN: https://ssrn.com/abstract=3832773 or http://dx.doi.org/10.2139/ssrn.3832773

Ivan Jaccard (Contact Author)

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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