The interaction between residential investment and economic growth in Canada: Granger-Causality tests and cyclical patterns analysis

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Title: The interaction between residential investment and economic growth in Canada: Granger-Causality tests and cyclical patterns analysis
Authors: Huang, Yin
Date: 2015-12-31
Abstract: Back in the 1940s and 1950s, residential investment was labelled as a “consumer good”, and some economists even argued that residential investment is akin to a drug with respect to economic development as it may compromise the stability and the health of the domestic economy. However, the attitude towards residential investment has changed over the past few decades. The effect of residential investment on economic growth becomes crucial nowadays as some works show that the recessions and expansions of the economy are related to the booms and busts of the real estate industry. This paper examines the interaction among residential investment, non-residential investment, and economic growth in Canada by using two methods. The first method is based on Granger-causality tests, and the evidence seems to support the argument that non-residential investment predicts economic (GDP) growth when household residential investment is unadjusted for seasonal factor. On the other hand, if seasonal factors are considered, both residential and non-residential investments predict economic growth. The second method analyzes the data into cyclical patterns, and the evidence seems to support the argument that residential investment plays a more important role for economic growth. The role of debt-financed income is also considered, by adding consumer credit to residential investment in both approaches.
URL: http://hdl.handle.net/10393/34162
CollectionScience économique - Mémoires // Economics - Research Papers
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