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Follow the Leader: How Changes in Residential and Non‐residential Investment Predict Changes in GDP
Author(s) -
Green Richard K.
Publication year - 1997
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00714
Subject(s) - investment (military) , economics , gross private domestic investment , business cycle , lag , gross fixed capital formation , fixed investment , monetary economics , real gross domestic product , macroeconomics , capital investment , capital (architecture) , labour economics , gross domestic product , finance , capital formation , return on investment , market economy , human capital , open ended investment company , geography , production (economics) , financial capital , computer network , archaeology , computer science , political science , politics , law
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.