Housing Booms and the U.S. Productivity Puzzle

Jose Carreno

Working Papers from U.S. Census Bureau, Center for Economic Studies

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.

Pages: 87 pages
Date: 2020-01
New Economics Papers: this item is included in nep-dge, nep-eff, nep-mac and nep-ure
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https://www2.census.gov/ces/wp/2020/CES-WP-20-04.pdf First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:20-04

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