Asset Price Declines and Real Estate Market Illiquidity: Evidence from Japanese Land Values

John Krainer, Mark Spiegel and Nobuyoshi Yamori

No 2004-16, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We examine the pattern of price depreciation in Japanese land values subsequent to the 1990 stock market crash. While all land values fell heavily, the data indicate that Japanese commercial land values fell much more quickly than residential land values. Using an error-correction specification, we confirm that Japanese commercial land prices exhibited faster convergence to steady state values than residential land prices. We then develop an overlapping-generations model with two-sided matching and search to explain this disparity. In the model, old agents own real estate and are matched each period with a young agent endowed with an unverifiable idiosyncratic service value for the old agent’s real estate. When fundamentals decline, the old agents optimally "fish" for high service flow young agents by pricing above average valuation levels. This leads to higher illiquidity and default in times of price decline, as well as price persistence which is increasing in the variance of average service flows. As we would posit that the variance of service flows would be higher for residential real estate than for the commercial real estate market, this model matches the Japanese experience.

Keywords: Real property; Prices; Japan (search for similar items in EconPapers)
JEL-codes: G12 R31 R33 (search for similar items in EconPapers)
Pages: 45
Date: 2005-01-01
New Economics Papers: this item is included in nep-fmk, nep-sea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.frbsf.org/wp-content/uploads/wp04-16bk.pdf PDF - view (application/pdf)
https://www.frbsf.org/research-and-insights/public ... apanese-land-values/ FRBSF - view (text/html)
https://fraser.stlouisfed.org/title/working-papers ... t-illiquidity-639729 FRASER - view (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2004-16

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2004-16

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().