Irreversibility, Uncertainty and Housing Investment
Posted: 19 Oct 2008
Date Written: October, 17 2008
Housing represents a form of "irreversible" investment. Theoretically, increased uncertainty should lower housing investment. Empirically, finding a proxy for uncertainty has proven problematic. Some recent papers have investigated the effect of uncertainty on real estate investment, with varying proxies for uncertainty and mixed results. This paper employs a technique used in modern marcroeconomic studies, the GARCH-M model, which has been shown to correspond as closely as any known measure to theoretical concepts of uncertainty. Results indicate that uncertainty indeed has a negative impact on housing starts.
Keywords: housing, investment, irreversibility
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