Is Housing the Business Cycle? A Multiresolution Analysis for OECD Countries

Fluctuations in housing markets(1) have long been recognized as leading indicators of an economy. Learner (2007, 2015) claimed that housing activities predict and cause national business cycles in the United States. We investigate his claims for a larger set of countries. We also examine this predictive relationship in multiple resolutions or timescales, namely, short-run and long-run variations of business cycles. Structural vector autoregression (SVAR) models are estimated to test his more contentious causal claim. Our results show that housing indicators lead business cycles in most countries and that leading relationship is more prominent in the long run. In addition, our SVAR results for the United States indicate that housing factors are likely independent drivers of business cycles. Housing supply indicators predict short-run variations in business cycles, and housing price predicts long-run variations better. The cross-country evidence is less certain. Generally, our findings on timescale-based relationships between housing and the macro economy restrict future models of business cycles.