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Housing Dynamics over the Business Cycle

Listed author(s):
  • Finn E. Kydland

    ()

    (Department of Economics, University of California-Santa Barbara (UCSB)
    National Bureau of Economic Research (NBER))

  • Peter Rupert

    ()

    (Department of Economics, University of California-Santa Barbara (UCSB))

  • Roman Sustek

    ()

    (School of Economics and Finance Queen Mary
    Centre for Macroeconomics (CFM))

Housing construction, measured by housing starts, leads GDP in a number of countries. Measured as residential investment, the lead is observed only in the US and Canada; elsewhere, residential investment is coincident. Variants of existing theory, however, predict housing construction lagging GDP. In all countries in the sample, nominal interest rates are low ahead of GDP peaks. Introducing fully-amortizing mortgages and an estimated process for nominal interest rates into a standard model aligns the theory with the observations on starts; one-period loans are insufficient to generate the lead. Longer time to build then makes residential investment cyclically coincident.

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File URL: http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2014/CFMDP2014-23-Paper.pdf
File Function: First version, 2014
Download Restriction: no

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1423.

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Length: 60 pages
Date of creation: Aug 2014
Handle: RePEc:cfm:wpaper:1423
Contact details of provider: Web page: http://www.centreformacroeconomics.ac.uk/

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