Residential Investment and Business Cycles in an Open Economy: A Generalized Impulse Response Approach

Abstract

Residential investment, Non-residential investment, Economic growth,

Federal Reserve and private forecasts of growth in investment

“…It is this variation in investment that has long been recognized as an important factor in explaining the cyclical behavior of output. Coulson and Kim (2000) and Bisping and Patron (2008), for instance, show that shocks to business and residential investment have a much greater impact on GDP than shocks to other components of aggregate demand. They also show that GDP is influenced more by shocks to residential investment than by shocks to business investment.…”

Housing Price Cycles and Aggregate Business Cycles: Stylised Facts in the Case of Malaysia

“…Such studies are segregated into two categories, namely time domain studies (Brooks, Tsocalos and Lee, 2000, Matysiak and Tsocalos, 2003, Wang, 2000, 2003a, Kim, 2003, Bisping and Patron, 2008, Ghent and Owyang, 2009, Pholphirul and Rukumnuaykit, 2009, Beidas-Strom et al, 2009and Beltratti and Morana, 2010, Alvarez et al, 2010, Aspachs-Bracons and Rabanal, 2010 and frequency domain studies (Brown andLiow, 2001, Wang, 2003b). We focus on the former since we are not using frequency domain analysis in this paper.…”

“…Generally, strong common cycle relationships are found between real estate returns and a group of variables including house price and output in the service and manufacturing sector. Bisping and Patron (2008) studied the US economy during 1959Q1-1997Q2 and adopted a Johansen VAR/VECM approach with five variables including consumption, residential investment, non-residential investment, government spending and net exports. Notably, the authors used the first-difference filter to examine the interlinkages between the five variables.…”

The links between property and the economy – evidence from the British and German markets

“…Plazzi, Torous and Valkanov (2008) examine cross-sectional dispersions of return and growth in rents for commercial real estate in US metropolitan areas and find that timeseries fluctuations can be significantly explained by the term and credit spreads, inflation and the short rate of interest. Bisping and Patron (2008) study the impact of residential and non-residential investment on US economic growth, including the external sector. The results of generalised impulse response analyses indicate that shocks to residential investments have a larger impact on GDP than shocks to non-residential investments.…”