Friday, Jan. 4, 2019 8:00 AM - 10:00 AM
- Chair: Jiro Yoshida, Pennsylvania State University
Is Housing the Business Cycle? A Multi-resolution Analysis for OECD Countries
AbstractFluctuations in the housing market have long been recognized by academics and practitioners as leading indicators of general economic activities. Recently, Leamer (2007, 2015) claims that housing activities both predict and cause national business cycles in the US. We investigate his claims for a larger set of countries. We also examine the predictive relationship in multiple resolutions or time scales, namely short-run and long-run variations of business cycles. Structural vector auto-regression (SVAR) models are estimated to test his more contentious causal claim. Our results show that: (1) housing indicators lead business cycles in most countries; (2) such leading relationship is the most prominent in the long-run. In addition, our SVAR results for the US indicate that housing factors are likely independent drivers of business cycles. The cross-country evidences are less certain. Our findings on dynamic relationships between housing and macro economy for multiple time scales put restrictions on future models of monetary transmissions involving the housing sector.
Does Peer Sentiment Affect Firm Investment? Evidence from the Homebuilding Industry
AbstractUsing data from public homebuilders in the U.S. over 2003Q1-2016Q3, this paper examines the effect of peer firm sentiment on firm investment decisions. Peer sentiment is measured by the NAHB/Wells Fargo Housing Market Index, derived from a monthly survey of homebuilders perceptions about the conditions of the single-family housing market. We find that a one-standard-deviation increase in the peer sentiment index induces homebuilders to increase their land inventory by 8.4%-12.6% and homebuilding expenses (inflation-adjusted) by 16.8%. However, the positive relationship between building activities and peer sentiment is only strong when it is clear that the majority of the builders share similar beliefs. In addition, big builders are less prone to peer sentiment than small firms. We also find that firms that overbuild compared to their peers have significantly lower stock returns.
The First Housing Bubble? Prices and Turnover in Amsterdam, 1582-1810
AbstractThis paper uses the setting of historical Amsterdam to investigate the origins of booms and busts in housing markets. Based on archival data from more than 164,000 property transactions, I discuss the structure of the Amsterdam housing market and construct an annual house price (1604-1810) and turnover (1582-1810) index. I document the existence of various boom-bust cycles, and show that these were characterized by the same four features as modern cycles: momentum in prices, excess volatility of prices relative to fundamentals, but reversion over the longer run, and a dynamic relationship between turnover and prices. Exploiting exogenous shocks in investor demand for housing, I show that excess liquidity can be a major driver of housing cycles, in particular when accompanied by speculative behavior of investors. Changes in the availability of mortgage credit are not required for the creation of booms and busts: housing cycles appear in Amsterdam despite inactivity in its mortgage markets.
- O1 - Economic Development
- E3 - Prices, Business Fluctuations, and Cycles