Housing, Credit, and Real Activity Cycles: Characteristics and Comovement

Abstract

This paper describes the characteristics and co-movement of cycles in house prices, residential investment, credit, interest rates, and real activity in advanced economies during the past 25 years. Stylized facts and regularities are uncovered using a dynamic generalized factor model and spectral techniques. House price cycles are found to lead credit and real activity over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. Although global factors are important, the US business cycle, housing cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the US credit cycle leads mainly over the long term.

Keywords: Macro-financial linkages, House prices, Credit, Business cycle

JEL Classification: E32, E44, F40