Abstract
Interest rates in the U.S. have been at historical lows since the financial crisis in 2007 for almost a decade, which are partly meant to stimulate investments. However, a theory by Chetty (2007) suggests that, at low rates, decreasing the interest rate has little effect on investments due to the low cost of delaying investment. This paper estimates constant-quality commercial real estate pricing indices for U.S. metro areas and empirically studies how interest rates affect capital expenditures of more than 12,000 properties across time (from 1997 to 2014) and metros. The identification comes from different responses of property capital expenses across metros to the same interest rate. Results show that decreasing the interest rate has weaker stimulating effects on investments when rates are low and where property prices are high.
| Original language | English (US) |
|---|---|
| Journal | Journal of Real Estate Finance and Economics |
| DOIs | |
| State | Published - Jan 1 2019 |
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All Science Journal Classification (ASJC) codes
- Accounting
- Finance
- Economics and Econometrics
- Urban Studies
Cite this
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Interest Rates and Investment : Evidence from Commercial Real Estate. / Peng, Liang; Thibodeau, Thomas G.
In: Journal of Real Estate Finance and Economics, 01.01.2019.Research output: Contribution to journal › Article
TY - JOUR
T1 - Interest Rates and Investment
T2 - Evidence from Commercial Real Estate
AU - Peng, Liang
AU - Thibodeau, Thomas G.
PY - 2019/1/1
Y1 - 2019/1/1
N2 - Interest rates in the U.S. have been at historical lows since the financial crisis in 2007 for almost a decade, which are partly meant to stimulate investments. However, a theory by Chetty (2007) suggests that, at low rates, decreasing the interest rate has little effect on investments due to the low cost of delaying investment. This paper estimates constant-quality commercial real estate pricing indices for U.S. metro areas and empirically studies how interest rates affect capital expenditures of more than 12,000 properties across time (from 1997 to 2014) and metros. The identification comes from different responses of property capital expenses across metros to the same interest rate. Results show that decreasing the interest rate has weaker stimulating effects on investments when rates are low and where property prices are high.
AB - Interest rates in the U.S. have been at historical lows since the financial crisis in 2007 for almost a decade, which are partly meant to stimulate investments. However, a theory by Chetty (2007) suggests that, at low rates, decreasing the interest rate has little effect on investments due to the low cost of delaying investment. This paper estimates constant-quality commercial real estate pricing indices for U.S. metro areas and empirically studies how interest rates affect capital expenditures of more than 12,000 properties across time (from 1997 to 2014) and metros. The identification comes from different responses of property capital expenses across metros to the same interest rate. Results show that decreasing the interest rate has weaker stimulating effects on investments when rates are low and where property prices are high.
UR - http://www.scopus.com/inward/record.url?scp=85062696752&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85062696752&partnerID=8YFLogxK
U2 - 10.1007/s11146-019-09699-8
DO - 10.1007/s11146-019-09699-8
M3 - Article
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
SN - 0895-5638
ER -