December 2020 issue contents
Residential Investment and Economic Activity: Evidence from the Past Five Decades

Emanuel Kohlscheen, Aaron Mehrotra, and Dubravko Mihaljek
Bank for International Settlements


We analyze the evolution and main drivers of residential investment in 15 advanced economies using a large panel with quarterly data since the 1970s. Residential investment is a notably volatile component of real GDP in all countries in the sample. Real house price growth, net migration inflows, household size, and the existing housing stock are significant drivers of residential investment across various model specifications. We detect important asymmetries: interest rate increases affect residential investment more than interest rate declines, and interest rate changes have larger effects on residential investment when its share in GDP is rising. We also show that information on residential investment significantly improves the performance of standard recession-prediction models.

JEL Codes: E22, E32, E37, E43, E52, F44

Full article (PDF, 43 pages, 1,312 kb)