An Investigation of the Relationship Between U.S. Housing Starts and Business Cycles
Liikala, Tero (2020)
2020
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2020051912229
https://urn.fi/URN:NBN:fi:amk-2020051912229
Tiivistelmä
This thesis draws inspiration from Leamer’s (2007) work on the connection between US housing and business cycles and undertakes qualitative analysis on the factors most likely to contribute significantly to US residential investment’s ability to accurately and reliably predict business cycles.
We search for convincing causal stories and research results that explain the housing starts and residential investments ability to predict business cycles and GDP by collecting, evaluating and comparing existing literature, qualitatively analyzing the results and drawing conclusions.
With our analysis, we attempt to answer the research questions of whether US housing starts are significant in business cycle forecasting and which factors influence their effectiveness in predicting business cycles?
We investigate household composition, demographics and local factors, mortgage markets and government supported enterprises, wealth effects, economic theory, interest rates, and behavioral factors and conclude that all factors contribute to housing starts’ accuracy and reliability as a leading indicator to varying degrees, and thus strongly emphasize the importance of creating a comprehensive view by including all aforementioned variables, if not more, to achieve the best results in forecasting business cycles based on residential investment.
We search for convincing causal stories and research results that explain the housing starts and residential investments ability to predict business cycles and GDP by collecting, evaluating and comparing existing literature, qualitatively analyzing the results and drawing conclusions.
With our analysis, we attempt to answer the research questions of whether US housing starts are significant in business cycle forecasting and which factors influence their effectiveness in predicting business cycles?
We investigate household composition, demographics and local factors, mortgage markets and government supported enterprises, wealth effects, economic theory, interest rates, and behavioral factors and conclude that all factors contribute to housing starts’ accuracy and reliability as a leading indicator to varying degrees, and thus strongly emphasize the importance of creating a comprehensive view by including all aforementioned variables, if not more, to achieve the best results in forecasting business cycles based on residential investment.