Housing and the Business Cycle

Morris Davis () and Jonathan Heathcote ()

No 01-09, Working Papers from Duke University, Department of Economics

Abstract: In the United States, the percentage standard deviation of residential investment is more than twice that of non-residential investment. GDP, consumption, and both types of investment all co-move positively. At the industry level, output and hours worked in construction are more than three times as volatile as in services, and output and hours co-move positively across sectors. We reproduce all these facts in a multi-sector growth model with the following characteristics: different final goods are produced using different proportions of the same set of intermediate inputs, construction is relatively labor intensive, residential investment is relatively construction intensive, and housing depreciates much more slowly than business capital. Previous empirical work exploring the determinants of residential investment is re-examined in light of the model's equilibrium relationship between residential investment, house prices, and the rental rate on capital.

JEL-codes: E2 E3 R3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pke
Date: 2001
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Related works:
Working Paper: Housing and the business cycle (2004)
Working Paper: Housing and the Business Cycle (2003)
Journal Article: HOUSING AND THE BUSINESS CYCLE (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:duk:dukeec:01-09

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