Commercial Real Estate Collateral and Liquidity Premium in a Two-Asset HANK Model

Details

Supervisors

Oikonomou, Rigas ; Trigari, Antonella

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité approfondie

Abstract

enThis thesis studies how commercial real estate collateral conditions affect macro-financial transmission in a two-asset heterogeneous-agent New Keynesian (HANK) model. The model augments a standard HANK environment with liquid and illiquid household assets by introducing a firm-side commercial-real-estate collateral block. Commercial real estate enters production through a capital–CRE composite and determines a collateral-capacity index. A decline in commercial real estate valuations raises an investment financing wedge and, in the extended specification, also increases the liquidity premium between liquid and illiquid returns. The analysis compares a constant-premium benchmark with a collateral-sensitive specification. Reduced-form empirical evidence using U.S. commercial property prices and an equity-minus-T-bill spread motivates a positive but moderate sensitivity of the liquidity premium to CRE collateral conditions. However, because the empirical proxy is based on realized asset returns and the estimates are sensitive to dynamics, volatility, heavy tails, and influential observations, the sensitivity parameter is calibrated over a conservative grid rather than structurally estimated. The quantitative results show that a negative CRE price shock lowers collateral capacity, raises the investment financing wedge, and reduces investment. When the liquidity premium responds to collateral capacity, the same shock also affects household portfolio positions and amplifies the investment response relative to the constant-premium benchmark. The mechanism is strongest for investment, returns, and household portfolio variables, while the output response depends on general-equilibrium labor adjustment in the implemented model. TFP and monetary policy shocks are used as validation exercises and show that the reduced-form CRE extension does not mechanically overturn the baseline propagation of standard aggregate shocks under the benchmark calibration.