Interest Rate and Investment under Uncertainty: Evidence from Commercial Real Estate Capital Improvements
نویسندگان
چکیده
This paper empirically analyzes the non-monotonic influence that interest rate changes have on irreversible investment in income producing properties. Using the complete history of quarterly capital improvements for 1,416 commercial properties over the 1978 to 2009 period, we find strong evidence of the non-monotonic effect for apartment, office, and retail properties, but not for industrial properties. For the first three property types, a decrease in the Treasury yield dramatically increases capital improvements when property values are high, but has a weak or negative effect when property values are low. This result has important implications for monetary and fiscal policies. JEL classification: E22, E52
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