Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 349: Manufacturing Decline and House Price Volatility

Isaiah Hull, Conny Olovsson, Karl Walentin () and Andreas Westermark
Additional contact information
Isaiah Hull: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Conny Olovsson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Karl Walentin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Andreas Westermark: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: Using a unique dataset of all Swedish housing transactions over the 2009-2017 period, we find that an increase in manufacturing's share of employment is positively associated with house price growth volatility and negatively associated with risk-adjusted housing returns. Both effects appear to be related to manufacturing's impact on firm concentration and employment volatility. Moreover, as we demonstrate in an application, our results have implications for portfolio choice. They also suggest that the manufacturing decline since 1970 could account for a 32% reduction in house price volatility in Sweden, and similar reductions in the U.S., U.K., and Japan.

Keywords: House Prices; Portfolio Choice; Manufacturing; Volatility

JEL-codes: E30; O14; R20

50 pages, First version: December 1, 2017. Revised: July 1, 2019. Earlier revisions: March 1, 2018, March 1, 2018, July 1, 2019.

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