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

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  • Jin, Yi
  • Leung, Charles Ka Yui
  • Zeng, Zhixiong

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

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26722.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:26722

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Keywords: External Finance Premium; Residential and Corporate Real Estate; Capital Market Imperfections; Equilibrium Default; Real Estate Price Volatility.;

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Cited by:
  1. 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.
  2. Dong, Yan & Leung, Charles Ka Yui & Cai, Dongliang, 2011. "What Drives Fixed Asset Holding and Risk-Adjusted Performance of Corporate in China? An Empirical Analysis," MPRA Paper 29128, University Library of Munich, Germany.
  3. Leung, Charles Ka Yui, 2014. "Error Correction Dynamics of House Prices: an Equilibrium Benchmark," MPRA Paper 55654, University Library of Munich, Germany.
  4. Balasubramanyan, Lakshmi & Coulson, Edward, 2013. "Do house prices impact business starts?," Journal of Housing Economics, Elsevier, Elsevier, vol. 22(1), pages 36-44.
  5. 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.
  6. Chen, Nan-Kuang & Cheng, Han-Liang & Mao, Ching-Sheng, 2012. "House price, mortgage premium, and business fluctuations," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1388-1398.

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