In the United States, the percentage standard deviation of residential investment is more than twice that of non-residential investment. GDP, consumption, and both types of investment all co-move positively. At the industry level, output and hours worked in construction are more than three times as volatile as in services, and output and hours co-move positively across sectors. We reproduce all these facts in a multi-sector growth model with the following characteristics: di?erent Þnal goods are produced using di?erent proportions of the same set of intermediate inputs, construction is relatively labor intensive, residential investment is relatively construction intensive, and housing depreciates much more slowly than business capital. Previous empirical work exploring the determinants of residential invest- ment is re-examined in light of the models equilibrium relationship between residential investment, house prices, and the rental rate on capital.
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~03-03-21.
Length: Date of creation: 03 Sep 2003 Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~03-03-21
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Morris A. Davis & Jonathan Heathcote, 2005.
"Housing And The Business Cycle,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 751-784, 08.
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Find related papers by JEL classification: E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location
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