Housing and the Business Cycle

Finance and Economics Discussion Paper No. 2004-11

43 Pages Posted: 12 Apr 2004

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2003


In the United States, the percentage standard deviation of residential investment is more than twice that of non-residential investment. In addition, GDP, consumption, and both types of investment co-move positively. We reproduce these facts in a calibrated multi-sector growth model where construction, manufacturing and services are combined, in different proportions, to produce consumption, business investment and residential structures. New housing requires land in addition to new structures. The model can also account for important features of industry-level data. In particular, hours and output in all industries are positively correlated, and are most volatile in construction.

Keywords: Residential investment, co-movement, home production, multisector models

JEL Classification: E0, E2, R21, R31

Suggested Citation

Davis, Morris A. and Heathcote, Jonathan, Housing and the Business Cycle (November 1, 2003). Finance and Economics Discussion Paper No. 2004-11, Available at SSRN: https://ssrn.com/abstract=528102 or http://dx.doi.org/10.2139/ssrn.528102

Morris A. Davis (Contact Author)

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Jonathan Heathcote

Minneapolis Fed ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

HOME PAGE: http://www.jonathanheathcote.com

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