Abstract
Financial deregulation in 1980 potentially altered key relationships between residential fixed investment and key macroeconomic variables. This study uses a vector error correction model (VECM) to examine relationships between residential fixed investment, money, interest rates, and output in pre-deregulation and post-deregulation sub-periods. Results indicate short-term interest rate shocks account for much of RFI variability pre-deregulation. After deregulation, long-term FHA interest rate shocks better account for RFI movements. Results also show that, in the post-deregulation era, residential fixed investment shocks have increased predictive power for overall GDP movements. Thus, the study finds altered relationships between residential fixed investment and macroeconomic variables.
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