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Housing Dynamics

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  • Roman Sustek

    (Bank of England)

  • Peter Rupert

    (University of California, Santa Barbara)

  • Finn Kydland

Abstract

Over the U.S. business cycle, fluctuations in residential investment systematically lead fluctuations in real GDP. Evidently, these dynamics are specific to the U.S. and Canada. In other developed economies residential investment tends to be coincident with the cycle. On the other hand, in all countries considered, nonresidential investment is either coincident with or lags GDP. These observations are in sharp contrast with the predictions of nearly all business cycle models once investment is disaggregated. In such models, residential investment lags while nonresidential investment leads output. We ask to what extent differences in financing arrangements, namely fixed vs. variable rate mortgages, have in explaining the lead-lag pattern of investment. We show that including mortgage financing costs aligns the theory more closely with the data.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 315.

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Date of creation: 2012
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Handle: RePEc:red:sed012:315

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Cited by:
  1. Carlos Garriga & Finn E. Kydland & Roman Šustek, 2013. "Mortgages and Monetary Policy," Discussion Papers 1306, Centre for Macroeconomics (CFM).
  2. Goodness C. Aye & Mehmet Balcilar & Adel Bosch & Rangan Gupta, 2013. "Housing and the Business Cycle in South Africa," Working Papers 201323, University of Pretoria, Department of Economics.
  3. Michal Brzoza-Brzezina, 2014. "Financial Frictions and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 249-261, June.
  4. Walentin, Karl, 2013. "Business Cycle Implications of Mortgage Spreads," Working Paper Series 275, Sveriges Riksbank (Central Bank of Sweden), revised 01 Mar 2014.

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