Land collateral and labor market dynamics in France

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Date: May 2016
From: European Economic Review(Vol. 84)
Publisher: Elsevier Science Publishers
Document Type: Article
Length: 170 words

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Abstract :

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.euroecorev.2014.11.002 Byline: Leo Kaas, Patrick A. Pintus, Simon Ray Abstract: The value of land in the balance sheet of French firms correlates positively with their hiring and investment flows. To explore the relationship between these variables, we develop a macroeconomic model with firms that are subject to both credit and labor market frictions. The value of collateral is driven by the forward-looking dynamics of the land price, which reacts endogenously to fundamental and non-fundamental (sunspot) shocks. We calibrate the model to French data and find that land price shocks give rise to significant amplification and hump-shaped responses of investment, vacancies and unemployment that are in line with the data. We show that both the endogenous movements in the firms' discount factor and the sluggish response of the land price are key elements that drive the results. Author Affiliation: (a) University of Konstanz, Germany (b) Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, France (c) Banque de France, France

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Gale Document Number: GALE|A470520340