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Intrinsic Cycles of Land Price: A Simple Model

  • Charles Ka Yui Leung

    ()

    (Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong)

  • Nan-Kuang Chen

    ()

    (Department of Economics, National Taiwan University, 21 Shuchow Road, Taipei 10021, Taiwan)

The cyclicality and volatility of property prices have been extensively documented. Many explanations have been proposed. This paper builds a simple dynamic general equilibrium model in which these often cited channels are assumed away. Instead, the role of intertemporal elasticity of substitution is highlighted. In this model, the land price can exhibit price cycles. Moreover, the land price always fluctuates more than the aggregate output. The welfare of different cohorts depends crucially on the land price at the period they were born. The implications of these results are discussed.

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Article provided by American Real Estate Society in its journal journal of Real Estate Research.

Volume (Year): 28 (2006)
Issue (Month): 3 ()
Pages: 293-320

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Handle: RePEc:jre:issued:v:28:n:3:2006:p:293-320
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