Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101027
Authors: 
Miao, Jianjun
Wang, Pengfei
Zha, Tao
Year of Publication: 
2014
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2014-15
Abstract: 
In the U.S. economy during the past 25 years, house prices exhibit fluctuations considerably larger than house rents, and these large fluctuations tend to move together with business cycles. We build a simple theoretical model to characterize these observations by showing the tight connection between price-rent fluctuation and the liquidity constraint faced by productive firms. After developing economic intuition for this result, we estimate a medium-scale dynamic general equilibrium model to assess the empirical importance of the role the price-rent fluctuation plays in the business cycle. According to our estimation, a shock that drives most of the price-rent fluctuation explains 30 percent of output fluctuation over a six-year horizon.
Subjects: 
asset pricing
financial frictions
working capital
cutoff productivity
heterogeneous firms
endogenous TFP
house price
liquidity constraint
JEL: 
E22
E32
E44
Document Type: 
Working Paper

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