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Rents, Prices and Interest Rates

Author

Listed:
  • Yuming Li

    (Department of Finance, College of Business and Economics, California State University, Fullerton, CA 92834, U.S.A.)

Abstract

This article reports that after controlling the effect of the long-term real interest rate and extending forecasting horizons beyond the typical 3 months to 3 or 4 years found in most existing studies, I find that the rent-price ratio is significantly related to both the expected rent growth and price growth over five- to six-year horizons. The expected future price growth is more sensitive than the expected rent growth to each of the two predictors. The differences in the sensitivities are consistent with the mean reversion property of the rent-price ratio and the positive relationship between the current interest rate and the future rent-price ratio. The increasing predictive power for longer horizons is consistent with the implications of a vector autoregressive model for the two predictors that are highly persistent and interacting with each other.

Suggested Citation

  • Yuming Li, 2026. "Rents, Prices and Interest Rates," Annals of Economics and Finance, Society for AEF, vol. 27(1), pages 91-112, May.
    • Handle: RePEc:cuf:journl:y:2026:v:27:i:1:li
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    Keywords

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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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