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The behavior of household and business investment over the business cycle

Author

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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.

Suggested Citation

  • Kausik Gangopadhyay & Juan Carlos Hatchondo, 2009. "The behavior of household and business investment over the business cycle," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum.
  • Handle: RePEc:fip:fedreq:y:2009:i:sum:n:v.95no.3
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    File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2009/summer/pdf/hatchondo.pdf
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    References listed on IDEAS

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    1. Greenwood, Jeremy & Hercowitz, Zvi, 1991. "The Allocation of Capital and Time over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1188-1214, December.
    2. Chang, Yongsung, 2000. "Comovement, excess volatility, and home production," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 385-396, October.
    3. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-1187, December.
    4. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
    5. 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.
    6. 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.
    7. Paul Gomme & Finn E. Kydland & Peter Rupert, 2001. "Home Production Meets Time to Build," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1115-1131, 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. Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December.
    10. 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.
    11. Einarsson, Tor & Marquis, Milton H., 1997. "Home production with endogenous growth," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 551-569, August.
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    Citations

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    Cited by:

    1. Accolley, Delali, 2016. "Accounting for Business Cycles in Canada: I. The Role of Supply-Side Factors," MPRA Paper 69856, University Library of Munich, Germany.
    2. Guo, Zi-Yi, 2017. "Information heterogeneity, housing dynamics and the business cycle," EconStor Preprints 168561, ZBW - German National Library of Economics.
    3. Guo, Zi-Yi, 2017. "Information heterogeneity, housing dynamics and the business cycle," Economics Discussion Papers 2017-17, Kiel Institute for the World Economy (IfW).

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    Keywords

    Business cycles;

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