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

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  • Yi Jin
  • Charles K.Y. Leung
  • Zhixiong Zeng

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.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 40 (2012)
Issue (Month): 1 (03)
Pages: 167-195

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Handle: RePEc:bla:reesec:v:40:y:2012:i:1:p:167-195

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Cited by:
  1. Du, Julan & Leung, Charles Ka Yui & Chu, Derek, 2013. "Return enhancing, cash-rich or simply empire-building? An empirical investigation of corporate real estate holdings," MPRA Paper 44253, University Library of Munich, Germany.
  2. Yan Dong & Charles Ka Yui Leung & Dongliang Cai, 2012. "What Drives Fixed Asset Holding and Risk- Adjusted Performance of Corporates in China? An Empirical Analysis," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 15(2), pages 141-164.
  3. Leung, Charles Ka Yui, 2014. "Error Correction Dynamics of House Prices: an Equilibrium Benchmark," MPRA Paper 55654, University Library of Munich, Germany.
  4. Chen, Nan-Kuang & Cheng, Han-Liang & Mao, Ching-Sheng, 2012. "House price, mortgage premium, and business fluctuations," Economic Modelling, Elsevier, vol. 29(4), pages 1388-1398.
  5. Miguel Casares & Luca Deidda & Jose E. Galdon-Sanchez, 2013. "Business cycle and monetary policy analysis with market rigidities and financial frictions," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 1304, Departamento de Economía - Universidad Pública de Navarra.
  6. Balasubramanyan, Lakshmi & Coulson, Edward, 2013. "Do house prices impact business starts?," Journal of Housing Economics, Elsevier, Elsevier, vol. 22(1), pages 36-44.

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