On the role of domestic and international financial cyclical factors in driving economic growth

Abstract

Land market regulations are often justified by the assumption that activities of foreign and nonagricultural investors drive up prices in domestic land markets. However, empirical knowledge about the dynamics of agricultural land prices across borders is sparse. Using the German reunification as a natural experiment, we study the effect of the former inner German border on the dynamics of agricultural land prices in East and West Germany. We apply a land price diffusion model with an error correction specification to analyse spatial agricultural land markets. A novel feature of our model is its ability to distinguish price diffusion within states and across state borders. We provide evidence for a persistent border effect given that the fraction of spatially integrated counties is larger within states than across the former border. Moreover, we observe non-significant error correction terms for many counties along the former border. From a policy perspective, it is striking to realize that even 25 years after German reunification, pronounced land price differences persist. It is quite likely that price diffusion through existing borders within the EU would take even more time given language barriers, different institutional frameworks, and information asymmetries between domestic and foreign market participants.

A unified approach for jointly estimating the business and financial cycle, and the role of financial factors

“…Though we focus on largely understand the cyclical component of real GDP and financial cycles, we also note alternative approaches such asBillio, Donadelli, Livieri, and Paradiso (2020), which seeks to understand the role of financial cycles in driving output growth by modifying a neoclassical growth model.…”