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Housing Dynamics

Author

Listed:
  • Roman Sustek

    (Bank of England)

  • Peter Rupert

    (University of California, Santa Barbara)

  • Finn Kydland

Abstract

Over the U.S. business cycle, fluctuations in residential investment systematically lead fluctuations in real GDP. Evidently, these dynamics are specific to the U.S. and Canada. In other developed economies residential investment tends to be coincident with the cycle. On the other hand, in all countries considered, nonresidential investment is either coincident with or lags GDP. These observations are in sharp contrast with the predictions of nearly all business cycle models once investment is disaggregated. In such models, residential investment lags while nonresidential investment leads output. We ask to what extent differences in financing arrangements, namely fixed vs. variable rate mortgages, have in explaining the lead-lag pattern of investment. We show that including mortgage financing costs aligns the theory more closely with the data.

Suggested Citation

  • Roman Sustek & Peter Rupert & Finn Kydland, 2012. "Housing Dynamics," 2012 Meeting Papers 315, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:315
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Fernández-Amador, Octavio, 2016. "Finance-augmented business cycles: A robustness check," Papers 1038, World Trade Institute.
    2. Yi Wen & Xiaochuan Xing & Patrick Pintus, 2016. "Interest Rate Dynamics, Variable-Rate Loans, and the Business Cycle," 2016 Meeting Papers 293, Society for Economic Dynamics.
    3. Hashmat U. Khan & Jean-François Rouillard, 2017. "Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment," Cahiers de recherche 17-01, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    4. Carlos Garriga & Finn E. Kydland & Roman Sustek, 2013. "Mortgages and Monetary Policy," NBER Working Papers 19744, National Bureau of Economic Research, Inc.
    5. Michal Brzoza-Brzezina, 2014. "Financial Frictions and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 249-261, June.
    6. Walentin, Karl, 2014. "Business cycle implications of mortgage spreads," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 62-77.
    7. Octavio Fernández-Amador & Martin Gächter & Friedrich Sindermann, 2016. "Finance-augmented business cycles: A robustness check," Economics Bulletin, AccessEcon, vol. 36(1), pages 132-144.
    8. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, Elsevier.
    9. Millar, Jonathan N. & Oliner, Stephen D. & Sichel, Daniel E., 2016. "Time-to-plan lags for commercial construction projects," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 75-89.
    10. Eyigungor, Burcu, 2016. "Housing's Role in the Slow Recovery," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 1(2), pages 1-6, Q2.
    11. Hashmat U. Khan & Jean-François Rouillard, 2016. "Household Borrowing Constraints and Residential Investment Dynamics," Cahiers de recherche 16-04, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke, revised Nov 2017.
    12. Alpanda, Sami & Zubairy, Sarah, 2017. "Addressing household indebtedness: Monetary, fiscal or macroprudential policy?," European Economic Review, Elsevier, vol. 92(C), pages 47-73.
    13. Aye, Goodness C. & Balcilar, Mehmet & Bosch, Adél & Gupta, Rangan, 2014. "Housing and the business cycle in South Africa," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 471-491.
    14. repec:eee:jhouse:v:38:y:2017:i:c:p:38-49 is not listed on IDEAS
    15. Bulent Ozel & Reynold Christian Nathanael & Marco Raberto & Andrea Teglio & Silvano Cincotti, 2016. "Macroeconomic implications of mortgage loans requirements: An agent based approach," Working Papers 2016/05, Economics Department, Universitat Jaume I, Castellón (Spain).
    16. Dietsch, Michel & Petey, Joël, 2015. "The credit-risk implications of home ownership promotion: The effects of public subsidies and adjustable-rate loans," Journal of Housing Economics, Elsevier, vol. 28(C), pages 103-120.
    17. E. Monnet & C. Wolf, 2016. "Demographic Cycle, Migration and Housing Investment: a Causal Examination," Working papers 591, Banque de France.
    18. Hyunseung Oh & Chamna Yoon, 2016. "Residential construction lags across the US and their implications for housing supply," Vanderbilt University Department of Economics Working Papers 16-00002, Vanderbilt University Department of Economics.
    19. Pintus, Patrick A. & Wen, Yi & Xing, Xiaochuan, 2015. "Interest Rate Dynamics, Variable-Rate Loan Contracts, and the Business Cycle," Working Papers 2015-32, Federal Reserve Bank of St. Louis, revised 28 Mar 2016.
    20. repec:zbw:espost:168348 is not listed on IDEAS
    21. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, Elsevier.
    22. Éric Monnet & Clara Wolf, 2017. "Is demographics the housing cycle?," Rue de la Banque, Banque de France, issue 41, april..
    23. repec:kap:jrefec:v:56:y:2018:i:4:d:10.1007_s11146-017-9609-0 is not listed on IDEAS

    More about this item

    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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