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Housing Construction Cycles and Interest Rates

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Author Info
Laura Berger-Thomson (Reserve Bank of Australia)
Luci Ellis (Reserve Bank of Australia)
Abstract

Housing investment is one of the most cyclical components of GDP. Much of that cyclicality stems from the sector’s sensitivity to interest rates, but it is also possible that construction lags generate intrinsic cyclicality in this sector. Although the housing sector is generally considered to be more interest-sensitive than the economy as a whole, the degree of this sensitivity seems to vary between countries and through time. In this paper, we model the housing markets in Australia, the United States, the United Kingdom and Canada using a structural three-stage least-squares system. We document the variations in the housing sector’s cyclicality and sensitivity to movements in interest rates, and attempt to determine the underlying causes of these differences.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2004-08.

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Date of creation: Oct 2004
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Handle: RePEc:rba:rbardp:rdp2004-08

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Related research
Keywords: cycles housing construction interest rates

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Malcolm Edey & Ketil Hviding, 1995. "An Assessment of Financial Reform in OECD Countries," OECD Economics Department Working Papers 154, OECD Economics Department. [Downloadable!]
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    Other versions:
  5. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 163-177. [Downloadable!]
  6. Meen, Geoffrey, 2000. "Housing Cycles and Efficiency," Scottish Journal of Political Economy, Scottish Economic Society, vol. 47(2), pages 114-40, May. [Downloadable!] (restricted)
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  12. Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 288-302, May. [Downloadable!] (restricted)
  13. Ioannides, Yannis M & Rosenthal, Stuart S, 1994. "Estimating the Consumption and Investment Demands for Housing and Their Effect on Housing Tenure Status," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 127-41, February. [Downloadable!] (restricted)
  14. Bai, Jushan & Lumsdaine, Robin L & Stock, James H, 1998. "Testing for and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 395-432, July. [Downloadable!] (restricted)
  15. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia. [Downloadable!]
  16. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  17. Jonathan McCarthy & Richard W. Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 139-158. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frédérick Demers, 2005. "Modelling and Forecasting Housing Investment: The Case of Canada," Working Papers 05-41, Bank of Canada. [Downloadable!]
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