NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Land-price dynamics and macroeconomic fluctuations

Zheng Liu, Pengfei Wang, Tao Zha

NBER Working Paper No. 17045
Issued in May 2011
NBER Program(s):   EFG   ME

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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Document Object Identifier (DOI): 10.3386/w17045

Published: Zheng Liu & Pengfei Wang & Tao Zha, 2013. "Land‐Price Dynamics and Macroeconomic Fluctuations," Econometrica, Econometric Society, vol. 81(3), pages 1147-1184, 05. citation courtesy of

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