Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis

Jin, Yi and Leung, Charles Ka Yui and Zeng, Zhixiong (2010): Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: External Finance Premium, Residential and Corporate Real Estate, Capital Market Imperfections, Equilibrium Default, Real Estate Price Volatility.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets

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