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Housing Booms and the U.S. Productivity Puzzle

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  • Jose Carreno

Abstract

The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.

Suggested Citation

  • Jose Carreno, 2020. "Housing Booms and the U.S. Productivity Puzzle," Working Papers 20-4, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:20-4
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    File URL: https://www2.census.gov/ces/wp/2020/CES-WP-20-4.pdf
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Housing Booms and the U.S. Productivity Puzzle
      by Christian Zimmermann in NEP-DGE blog on 2020-02-12 19:52:35

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