Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80203
Authors: 
Nakajima, Tomoyuki
Year of Publication: 
2003
Series/Report no.: 
Working Paper, Brown University, Department of Economics 2003-25
Abstract: 
A notable feature of the Japanese economy in the last two decades is the large fluctuations in asset prices. We examine whether they can by accounted for by a stochastic growth model with habit persistence and costly capital adjustment. For the real estate price, people’s expectations on the trend growth rate in the future plays a crucial role. In particular, our model with adaptive expectations about future productivity growth can reproduce the aggregate land price. However, even with habit persistence and costly capital adjustment, a substantial portion of the stock price fluctuations is left unexplained, and a puzzle remains. Our result suggests that the price of installed capital is close to zero or that people don’t take into account the value of capital when trade shares.
Subjects: 
Japanese economy
land prices
stock prices
adaptive expectations
productivity growth
JEL: 
E32
E37
G12
O40
O53
Document Type: 
Working Paper

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