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Housing Dynamics over the Business Cycle

Author

Listed:
  • 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))

Abstract

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.

Suggested Citation

  • Finn E. Kydland & Peter Rupert & Roman Sustek, 2014. "Housing Dynamics over the Business Cycle," Discussion Papers 1423, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:1423
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    References listed on IDEAS

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    More about this item

    Keywords

    Residential Investment; Housing Starts; Business Cycle; Mortgage Costs; Time to Build;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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