TY - JOUR
T1 - Interest Rates and Investment
T2 - Evidence from Commercial Real Estate
AU - Peng, Liang
AU - Thibodeau, Thomas G.
N1 - Funding Information:
We thank the Real Estate Research Institute (RERI) for a research grant and thank Raj Chetty, Jeff Fisher, Marc Louargand, David Watkins, Yuenleng Chou, and participants of the RERI 2011 conference and the AREUEA 2011 conference for numerous constructive comments. Liang Peng thanks the National Council of Real Estate Investment Fiduciaries (NCREIF) for providing the data. The authors take responsibility for any errors in this manuscript.
Publisher Copyright:
© 2019, Springer Science+Business Media, LLC, part of Springer Nature.
Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2020/5/1
Y1 - 2020/5/1
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.
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U2 - 10.1007/s11146-019-09699-8
DO - 10.1007/s11146-019-09699-8
M3 - Article
AN - SCOPUS:85062696752
VL - 60
SP - 554
EP - 586
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
SN - 0895-5638
IS - 4
ER -