Working Paper: NBER ID: w18432
Authors: Finn E. Kydland; Peter Rupert; Roman Sustek
Abstract: Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or lagging GDP. These observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment. Including mortgages and interest rate dynamics aligns the theory more closely with U.S. observations. Longer time to build in housing construction makes residential investment coincident with output.
Keywords: housing dynamics; business cycle; residential investment; nonresidential investment
JEL Codes: E22; E32; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fluctuations in residential investment (E20) | GDP (E20) |
| residential investment (R21) | GDP (E20) |
| nonresidential investment (R33) | GDP (E20) |
| time to build in housing construction (L74) | residential investment (R21) |