ECON 20 Lecture Notes - Lecture 21: Procyclical And Countercyclical, 18 Months, Hyman Minsky
Document Summary
The data show that residential investment has rebounded significantly in every strong recovery from recession since (at least) 1974-75. (see the data chart posted on the course web site. ) One reason for this fact is that the fed typically cuts interest rates significantly in a recession. Residential construction may be the component of gdp that responds most strongly to this policy: note that this is a demand-side point. If the fed cuts interest rates and stimulates home purchases and construction, it is the demand for houses that causes an increase in the production of houses. (there is no obvious role for housing on the supply side. ) One can conclude from the data that residential construction is highly procyclical. Obviously, residential construction was hit very hard by the great recession. It has yet to rebound, despite the fact that interest rates are extremely low and the economy has been growing for more than 18 months.
