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Housing Booms and the U.S. Productivity Puzzle

January 2020

Written by: Jose Carreno

Working Paper Number:

CES-20-04

Abstract

The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
:
investment, macroeconomic, endogeneity, quarterly, productivity growth, growth, recession, regression, expenditure, estimates productivity, investment productivity, depreciation, analysis productivity, consumption, spending, gdp, budget, productivity dynamics, housing, regress, economic growth

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:
Metropolitan Statistical Area, Census of Manufactures, Bureau of Labor Statistics, Center for Economic Studies, Ordinary Least Squares, Total Factor Productivity, Cobb-Douglas, Bureau of Economic Analysis, Bureau of Labor, Economic Census, American Community Survey, Current Employment Statistics, 2010 Census

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