Ten years ago, I wrote this: |
| RICHARD K. GREEN George Washington University REAL ESTATE ECONOMICS, Vol. 25 No. 5, Summer 1997 |
| Abstract: This paper examines the effect of different kinds of investments on the business cycle. Specifically, it examines whether residential and non-residential investment Granger cause GDP, and whether GDP Granger causes each of these types of investments. The paper uses quarterly National Income and Products Data for the period 1959 to 1992. Under a wide variety of time-series specifications, residential investment causes, but is not caused by GDP, while non-residential investment does not cause, but is caused by GDP. Thus, housing leads and other types of investment lag the business cycle. The results also suggest that policies designed to funnel capital away from housing into plant and equipment could produce severe short-run dislocations. About a month ago, Ed Leamer wrote this: http://www.kc.frb.org/publicat/sympos/2007/PDF/2007.08.03.Leamer.pdf Where he showed that declines in the housing cycle are remarkably strong predictors of recessions. I have a ($1) bet with my boss, Susan Phillips, about whether we are heading into recession this year: I say yes and she says no. She was a Fed Governor, and so has insight that I don't begin to have. I would also prefer to lose the bet. By after last Friday's jobs numbers, I like my chances. |
Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California. This blog will feature commentary on the current state of housing, commercial real estate, mortgage finance, and urban development around the world. It may also at times have ruminations about graduate business education.
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