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Is There Such a Thing as the Skyscraper Curse?

Dr. Mark ThorntonAU Economic Club Presentation

Mises Institute, September 8th, 2015@DrMarkThornton @Mises

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So What is the Skyscraper Curse?

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Andrew Lawrence, 1999

• “An unhealthy 100-year correlation exists between the world’s next tallest building and an impending financial crisis.”

• “This could just be coincidence…”• “The link between the world’s next tallest

building and economic crisis is possibly more than coincidence.”

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Lawrence’s Correlation

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“Skyscrapers and Business Cycles”Thornton, QJAE, 2005

• Theory connects skyscrapers & business cycles• “Cantillon effects: $, demand, production• $ = interest rates, credit, investment– Price of land– Size and scope of business– Skyscraper technology

• Artificially low interest & easy credit = taller• But its not just skyscraper construction

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Cause and Effect

• Cause– Artificially low interest– Easy credit conditions

• Effects– Increased borrowing– Increased investment– Increased consumption– Increased “luxury”– Skyscrapers– Boom/Bust

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Barr, et. al. “Skyscraper Curse: Separating Myth from Reality,” Applied Economics, 2015

• Cointegration tests show SKY & GDP move together, common cause(s)

• Granger causality tests show that SKY does not cause GDP: GDP causes SKY

• Announcement, Opening dates not correlated with NBER expansions or contractions

• Skyscrapers can’t predict or forecast

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The Economist Magazine

• Is there such a thing as a skyscraper curse?• Mar 28th 2015 Based on Barr et al. (2015), but

they did reference Thornton (2005)• “In other words, you cannot accurately

forecast a recession or financial panic by looking at either the announcement or the completion of the world’s tallest building.”

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Critique of Barr et al.

• “SKY & GDP move together, common cause”– That is what Thornton (2005) expects. Common

cause is artificially low interest rates• “SKY doesn’t cause GDP, GDP causes SKY”– Also expected

• Announcement/Opening dates, bad. Ground breaking, record setting dates better. No date

• Barr = expansion/contraction, Curse = Crisis

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Economist graphic 3/28/15

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August, 2007 Burj Khalifa

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Kingdom Tower in Saudi Arabia?

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