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Housing Dynamics over the Business Cycle

  • Finn E. Kydland
  • Peter Rupert
  • Roman Sustek

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18432.

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Date of creation: Oct 2012
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Handle: RePEc:nbr:nberwo:18432
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