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Housing Market Cycles and Duration Dependence in the United States and Canada

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  • Rose Cunningham
  • Ilan Kolet
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    Abstract

    Housing wealth is a large component of total wealth and plays an important role in aggregate business cycles. In this paper, we explore data on real house price cycles at the aggregate level and city level for the United States and Canada. Using a panel of 137 cities, we examine the duration, size, and correlations of housing market cycles in North America. We find that North American housing cycles are long, averaging five years of expansion and four years of contraction, and there is a fairly high degree of correlation in house price cycles between U.S. and Canadian cities. We estimate a discrete time survival model with a probit specification for house price expansions and contractions. This model allows us to test for duration dependence. We find that housing market expansions have positive duration dependence since their exit probabilities increase with duration, while contractions seem to have no duration dependence. Standard determinants of house prices (interest rates, income and population growth) are included as controls.

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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 07-2.

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    Length: 48 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:bca:bocawp:07-2

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    Keywords: Business fluctuations and cycles; Econometric and statistical methods;

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    Cited by:
    1. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.

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