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

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

17 Scopus Citations
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Original languageEnglish
Pages (from-to)167-195
Journal / PublicationReal Estate Economics
Volume40
Issue number1
Publication statusPublished - Mar 2012

Abstract

This article 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 gross domestic product (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. © 2011 American Real Estate and Urban Economics Association.