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Land-Price Dynamics and Macroeconomic Fluctuations

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  • pengfei Wang

    (Hong Kong University of Science and Technology)

  • Tao Zha

    (Federal Reserve Bank of Atlanta)

  • Zheng Liu

    (Federal Reserve Bank of San Francisco)

Abstract

We argue that positive co-movements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the co-movements by incorporating two key features into a DSGE model: We introduce land as a collateral asset in firms' credit constraints and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 85.

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Date of creation: 2012
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Handle: RePEc:red:sed012:85

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