Land-Price Dynamics and Macroeconomic Fluctuations


Pengfei Wang

Tao Zha

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2011-26 | September 1, 2011

We argue that positive co-movements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the co-movements by incorporating two key features into a DSGE model: We introduce land as a collateral asset in firms’ credit constraints and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment.

Article Citation

Wang, Pengfei, Tao Zha, and Zheng Liu. 2011. “Land-Price Dynamics and Macroeconomic Fluctuations,” Federal Reserve Bank of San Francisco Working Paper 2011-26. Available at

About the Author
Zheng Liu
Zheng Liu is a vice president and director of the Center for Pacific Basin Studies in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Zheng Liu