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Housing Dynamics over the Business Cycle

  • Kydland, Finn
  • Rupert, Peter
  • Sustek, Roman

Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or lagging GDP. These observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment. Including mortgages and interest rate dynamics aligns the theory more closely with U.S. observations. Longer time to build in housing construction makes residential investment coincident with output.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt7bn5k73m.

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Date of creation: 01 Aug 2012
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Handle: RePEc:cdl:ucsbec:qt7bn5k73m
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