Land Prices and Business Fixed Investments in Japan / Nobuhiro Kiyotaki, Kenneth D. West.

Format:

Book

Author/Creator:

Kiyotaki, Nobuhiro.

Contributor:

National Bureau of Economic Research.

West, Kenneth D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10909.

NBER working paper series no. w10909

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Japan has seen episodes in which boom and bust in land prices is accompanied by boom and bust in business fixed investment. We develop a model that includes land in the production function. We show that in this model movements in land prices will be associated with movements of the capital stock in the same direction, provided the elasticity of substitution between land and capital is greater than one. We then estimate an aggregate investment function. Consistent with an elasticity greater than one, increases in land prices are associated with increases in the business capital stock even after controlling for movements in output and the cost of capital; decreases have a symmetric effect. In the end, however, we find that movements in land prices explain relatively little of the movement in the business fixed investment. In addition to possibly indicating that the elasticity is very near one, the small effect may result because of difficulty in extracting information from noisy land prices, neglect of the effects of regulations, and failure to consider credit constraints.

Notes:

Print version record

November 2004.