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Residential investment and economic activity: evidence from the past five decades

Emanuel Kohlscheen, Aaron Mehrotra and Dubravko Mihaljek ()

No 726, BIS Working Papers from Bank for International Settlements

Abstract: We analyse the evolution and main drivers of residential investment, using a panel with quarterly data for 15 advanced economies since the 1970s. Residential investment is a notably volatile component of real GDP in all countries in the sample. We find real house price growth, net migration inflows and the size of the existing housing stock to be significant drivers of residential investment across various model specifications. We also detect important asymmetries: interest rate increases affect residential investment more than interest rate cuts, and interest rate changes have larger effects on residential investment when its share in overall GDP is rising. Finally, we show that adding information on residential investment significantly improves the performance of standard recession prediction models.

Keywords: housing markets; residential investment; house prices; business cycles; construction; interest rates; recession forecasts (search for similar items in EconPapers)
JEL-codes: E22 E32 E37 E43 E52 F44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
Date: 2018-06
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