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REAL ESTATE CYCLES, ASSET REDISTRIBUTION, AND THE DYNAMICS OF A CRISIS

Published online by Cambridge University Press:  17 March 2016

Suparna Chakraborty
Suparna Chakraborty*
Affiliation:
University of San Francisco
*
Address correspondence to: Suparna Chakraborty, Department of Economics, University of San Francisco, 2130 Fulton Street, San Francisco, CA 94117, USA; email: schakraborty2@usfca.edu.
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Abstract

In this paper, I explore the dynamics of real estate market fluctuations and business cycle co-movements in a neoclassical setting. Applying a dynamic stochastic general equilibrium model of collateral constraints with asset reallocation to Japan, I find that public policy shocks account well for the business cycle dynamics. In particular, taxes on land holdings of households mimic the impact of a housing preference shock, and if volatile enough, can trigger large asset price fluctuations. However, in the absence of volatility, the impact on prices is intrinsically linked to the persistence of shocks. Dependence on fixed assets such as real estate to secure collateral-based financing significantly amplifies the effect of initial shocks on the real macro aggregates. The financial accelerator works through the “redistribution channel,” shifting a large fraction of the collateral between constrained and unconstrained agents in response to an external stimuli.

Keywords

Financial AcceleratorBusiness CyclesReal Estate DynamicsLand PricesLand ReallocationCredit ConstraintsFiscal Policy
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 7 , October 2016 , pp. 1873 - 1905
Copyright
Copyright © Cambridge University Press 2016 

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