Housing and the business cycle

Morris A. Davis, Jonathan Heathcote

Research output: Contribution to journalReview articlepeer-review

217 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)751-784
Number of pages34
JournalInternational Economic Review
Issue number3
StatePublished - Aug 2005
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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