Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234093 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2539
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper studies the effects of imperfect risk-sharing between lenders and borrowers on commercial property prices and leverage. The key friction is that agents use different discount rates to evaluate future flows. Eliminating this pecuniary externality generates large reductions in the volatility of real estate prices and credit. Therefore, policies that enhance risk-sharing between lenders and borrowers reduce the magnitude of boom-bust cycles in real estate prices. We also introduce health shocks to study the effect of the COVID-19 crisis on the commercial property market.
Subjects: 
Leverage Cycle
Pecuniary Externalities
Asset Pricing
Incomplete Markets
JEL: 
E32
E44
G10
E23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4539-4
Document Type: 
Working Paper

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