Housing and the Business Cycle

34 Pages Posted: 12 Jul 2005

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In the United States, the percentage standard deviation of residential investment is more than twice that of nonresidential investment. In addition, GDP, consumption, and both types of investment co-move positively. We reproduce these facts in a calibrated multisector 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.

Suggested Citation

Davis, Morris A. and Heathcote, Jonathan, Housing and the Business Cycle. International Economic Review, Vol. 46, No. 3, pp. 751-784, August 2005, Available at SSRN: https://ssrn.com/abstract=758063

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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