Interest Rates and Investment: Evidence from Commercial Real Estate

Liang Peng, Thomas G. Thibodeau

Research output: Contribution to journalArticle

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 languageEnglish (US)
JournalJournal of Real Estate Finance and Economics
DOIs
StatePublished - Jan 1 2019

Fingerprint

interest rate
real estate
evidence
financial crisis
expenditure
pricing
expenditures
Commercial real estate
Interest rates
costs
cost
rate
effect

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 journalArticle

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