Forecasting Capital Formation in Residential Housing

Ketchum, Marshall D.

doi:10.1086/294005

“…The housing starts data available from the Census Bureau begin in 1959 and leave us wondering what happened earlier, but in searching for references I ran across the image to the right of the earlier data in Ketchum(1954). Look at that: housing starts declined beginning in 1925!…”

Section: The Great Depression: Housing Again!mentioning

confidence: 99%

“…(e.g. Alberts(1962), Fair(1972), Ketchum(1954), de Leeuw and Gramlich(1969)) This literature takes the overall business cycle as given and explores the effects of income and interest rates on residential investment. By including interest rates as explanatory variables, this literature does explicitly explore the link from monetary policy to housing, but when Maisel(1967), for example, reports that residential investment is an important channel through which monetary policy affects the economy, that finding is treated like the discovery that alcohol has it effects by depressing the central nervous system, which is a mildly interesting fact that doesn't at all affect how much we drink.…”

mentioning

confidence: 99%

Housing Is the Business Cycle

Leamer

¹

2013

The Evidence and Impact of Financial Globalization

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Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession. Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables. Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have. By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.

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“…(e.g. Alberts(1962), Fair(1972), Ketchum(1954), de Leeuw and Gramlich(1969)) This literature takes the overall business cycle as given and explores the effects of income and interest rates on residential investment. By including interest rates as explanatory variables, this literature does explicitly explore the link from monetary policy to housing, but when Maisel(1967), for example, reports that residential investment is an important channel through which monetary policy affects the economy, that finding is treated like the discovery that alcohol has it effects by depressing the central nervous system, which is a mildly interesting fact that doesn't at all affect how much we drink.…”

Section: Housing and Academic Macroeconomicsmentioning

confidence: 99%

Housing IS the Business Cycle

Leamer¹

2007

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Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession. Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables. Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have. By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.

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“…Our study tries to fill an existing gap in the housing literature, since, as far as we can tell, either the majority of the empirical studies are old (Ketchum, ; Alberts, ; Fair, ), or they do not analyse a big sample of countries. We may refer to several examples of studies that concentrate on single countries to make the point: (a) Leamer () and McCarthy and Peach (), which provide empirical evidence on real residential investment in the USA; (b) Barot and Yang (), which compares the dynamics followed by the supply of housing in the UK and Sweden; and (c) Zhou (), which is focused on the interaction between sales and prices in the US housing market.…”

Section: Literature Review and Way Forwardmentioning

confidence: 99%

“…Ketchum () pointed out at an early stage that real disposable income per capita was an important variable in the determination of housing demand. Other attempts to include disposable income in the residential investment relationship approximate this variable by including wages (e.g.…”

mentioning

confidence: 99%

Residential Construction Activity inOECDEconomies

Arestis

¹

,

González

²

2014

The Manchester School

12

0

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Six years after the burst of the housing bubble in some of the main world economies, the recovery does not follow a homogeneous pattern among them. In this context, it is necessary to pay attention to the evolution of residential investment, which traditionally has played an important role in the revival of the economy after previous episodes of bubbles in the housing market. In the second stage of our study, we test our conceptual framework by means of a sample of 17 OECD countries which spans the period 1970 to 2013.

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Forecasting Capital Formation in Residential Housing

Cited by 5 publications

References 0 publications

Housing Is the Business Cycle

Housing Is the Business Cycle

Housing IS the Business Cycle

Residential Construction Activity inOECDEconomies

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