Secular stagnation, financial frictions, and land prices

Zhifeng Cai

Journal of Monetary Economics, 2021, vol. 124, issue C, 66-90

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)

Keywords: Secular stagnation; Multiplicity; Financial frictions; Land prices; Interest rates (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:124:y:2021:i:c:p:66-90

DOI: 10.1016/j.jmoneco.2021.10.001

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