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The behavior of household and business investment over the business cycle

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  • Kausik Gangopadhyay
  • Juan Carlos Hatchondo

Abstract

This article describes the main characteristics of the cyclical behavior of household and business investment over the cycle in the United States and reviews the most prominent studies that have tried to explain the dynamics of these two investment components. We conclude that even though there have been advances in the understanding of the behavior of these two investment components, more research is needed. One important limitation of existing studies is that they either abstract from changes in the relative price of houses or they generate house price movements that are not aligned with the data.

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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2009)
Issue (Month): Sum ()
Pages:

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Handle: RePEc:fip:fedreq:y:2009:i:sum:n:v.95no.3

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Keywords: Business cycles;

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  1. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycle," RCER Working Papers 268, University of Rochester - Center for Economic Research (RCER).
  2. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  3. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
  4. Paul Gomme & Finn Kydland & Peter Rupert, 2000. "Home production meets time-to-build," Working Paper 0007R, Federal Reserve Bank of Cleveland.
  5. Davis, Morris & Heathcote, Jonathan, 2001. "Housing and the Business Cycle," Working Papers 01-09, Duke University, Department of Economics.
  6. Einarsson, Tor & Marquis, Milton H., 1997. "Home production with endogenous growth," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 551-569, August.
  7. Chang, Yongsung, 2000. "Comovement, excess volatility, and home production," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 385-396, October.
  8. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
  9. Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
  10. Andreas Hornstein & Jack Praschnik, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Working Paper 97-06, Federal Reserve Bank of Richmond.
  11. Jonas D. M. Fisher, 2007. "Why Does Household Investment Lead Business Investment over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 115, pages 141-168.
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