In The USA, there is a striking negative correlation between the relative price of housing and GDP growth over the following 5 years Given this simple correlation, it is possible to forecast the great recession using just that variable and a trend.

In fact, the forecast recession is even more severe than the actual recession.

This note examines other developed countries using the data set (link below) assembled by Oscar Jordà, Moritz Schularick and Alan Taylor which includes annual series for the nominal price of housing for 17 developed countries.

For 13 of these countries, there is a strong negative association between the relative price of housing and real GDP growth ove the following 5 years.

An excellent fit of the time series of GDP growth can be obtained using only three variables. Out of sample forecasts are fairly useful – better than many medium term out of sample forecasts, but with markedly larger residuals than the within sample fit.

When each country is studied separately, the relationship is dramatically negative for 10 of 17 countries.

For all 17 countries, the time series of medium term GDP growth is fit extremely well using a very simple regression including the relative price of housing.

A similar simple regression gives moderately useful out of sample forecasts in which estimates based on data preceding the great worldwide recession tend if anything to imply forecasts that the early 21st century housing boom would be followed by a recession even more severe than the actual great recession.

Full Article (Longer Technical Read): https://angrybearblog.com/2018/05/the-relative-price-of-housing-and-subsequent-gdp-growth-in-17-developed-countries.html

Data Set Cited in Article: http://www.macrohistory.net/data/#DownloadData

Related Article: The Relative Price of Housing and Subsequent GDP growth in the USA. The basic result is that if the relative price of housing is high (compared to an exponential trend) then GDP growth over the following 5 years is low (compared to an exponential trend).

https://angrybearblog.com/2018/05/the-relative-price-of-housing-and-subsequent-gdp-growth-in-the-usa.html

#Housing #GDP #Economics

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