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Secular stagnation, financial frictions, and land prices

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  • Cai, Zhifeng

Abstract

We explore a model in which large transitory financial shocks can generate persistent slumps in output, land prices, and interest rate. The propagation channel works through a high sensitivity of land prices with respect to fundamental, achieved by a high complementarity between land services and consumption in households’ preference. When this complementarity is disciplined by micro-level evidence, the equilibrium features non-linear dynamics between two steady states. Large transitory financial shocks push the economy into a constrained region in which low interest rate makes firm unwilling to save out of the financial friction, leading to a secular stagnation. (JEL codes: E13, E32, E44)

Suggested Citation

  • Cai, Zhifeng, 2021. "Secular stagnation, financial frictions, and land prices," Journal of Monetary Economics, Elsevier, vol. 124(C), pages 66-90.
    • Handle: RePEc:eee:moneco:v:124:y:2021:i:c:p:66-90
    DOI: 10.1016/j.jmoneco.2021.10.001
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    More about this item

    Keywords

    Secular stagnation; Multiplicity; Financial frictions; Land prices; Interest rates;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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