Econometrica: May 2013, Volume 81, Issue 3

Land‐Price Dynamics and Macroeconomic Fluctuations
p. 1147-1184

Zheng Liu, Pengfei Wang, Tao Zha

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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Supplement to "Land-Price Dynamics and Macroeconomic Fluctuations"

This online appendix presents the detail of the data, the derivations of various models, the full discussions of estimation challenges, and other aspects of the model that are left out of the main text due to the space constraint.

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Supplement to "Land-Price Dynamics and Macroeconomic Fluctuations"

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