Institutional Affiliation: University of Chicago
|The Marginal Products of Residential and Non-Residential Capital Through 2009|
with Casey B. Mulligan: w15897
Estimates of the marginal product of capital can help forecast economic growth, test competing business cycle theories, and perform cost-benefit analysis. This paper presents annual and quarterly estimates of the marginal product of capital in the U.S. separately for the residential and non-residential sectors. The two sectors had positively correlated marginal products until the 2000s, when the residential marginal product fell during the housing boom, and rose during the housing bust. By the end of 2009, the residential MPK was back to the level of the 1990s. Although off its lows, the non-residential MPK is still below its historical average.
|Market Responses to the Panic of 2008|
with Casey Mulligan: w14446
We model the panic of 2008 as part of the wealth and substitution effects deriving from a housing price crash that began in 2006. The dissipation of the wealth effect stimulates a reorganization of the banking industry and increases in employment, GDP, and unemployment. The release of resources from the housing sector lowers investment goods prices, and thereby devalues existing non-residential capital while stimulating non-residential investment. These predictions are compared with measured U.S. economic performance from 2006 to 2008 Q2.