Housing is NOT ONLY the Business Cycle: A Luxemburg-Kalecki External Market Empirical Investigation for the United States

We study the residential investment-economic activity nexus in the United States during the period 1960–2020. We find evidence of symmetric and asymmetric frequency-domain Granger causality running unidirectionally from residential investment (RES) to output. This unidirectional causal relationship is both permanent and transitory: transitory shocks in RES have transitory effects on GDP, while permanent shocks in RES have permanent effects on GDP. Our results validate the hypothesis of Fiebiger [2018. ‘Semi-Autonomous Household Expenditures as the Causa Causans of Postwar US Business Cycles: The Stability and Instability of Luxemburg-Type External Markets.’ Cambridge Journal of Economics 42 (1): 155–175] and Fiebiger and Lavoie [2019. ‘Trend and Business Cycles with External Markets: Non-Capacity Generating Semi-Autonomous Expenditures and Effective Demand.’ Metroeconomica 70 (2): 247–262], who state that housing investment in the US can be analogous to a Luxemburg-Kalecki external market. Our findings can also be read through the lenses of the recent autonomous demand-led growth literature. In particular, we single out a specific component of autonomous demand and describe its prominent role in the US variety of capitalism. Thus, we conclude that residential investment, despite constituting a small overall share of GDP, is not only the cycle but is also the trend of the US economy.