Working Paper: NBER ID: w20377
Authors: Jianjun Miao; Pengfei Wang; Tao Zha
Abstract: The price-rent ratio is highly volatile and predicts future returns for commercial real estate. Price-rent variations in commercial real estate also tend to comove with investment and output. We develop a general equilibrium model that explicitly introduces a rental market and incorporates collateral constraints on production as a key ingredient. Our estimation identifies discount-rate shocks as the most important factor in (1) driving price-rent variations, (2) producing the long-horizon predictability of real estate returns, and (3) linking the dynamics in commercial real estate to those in the production sector.\n
Keywords: Discount Shock; Price-Rent Dynamics; Business Cycle
JEL Codes: E22; E32; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| discount rate shocks (E43) | price-rent variations (R21) |
| price-rent variations (R21) | investment dynamics (G31) |
| price-rent variations (R21) | output dynamics (C67) |
| discount rate shocks (E43) | real estate prices (R31) |
| discount rate shocks (E43) | volatility of investment (G11) |
| discount rate shocks (E43) | fluctuations in output (E32) |
| price-rent ratio (R31) | future returns (G17) |
| traditional business-cycle shocks (E32) | price-rent movements (R31) |