How large is the housing wealth effect? : a new approach

This paper presents a simple new method for estimating the size of ‘wealth effects’ on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as ‘habits’ in t
This paper presents a simple new method for estimating the size of ‘wealth effects’ on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as ‘habits’ in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegrationbased estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector. JEL Classification: E21, E32, C22
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Metadaten
Author:Christopher D. Carroll, Misuzu Otsuka, Jirka Slacalek
URN:urn:nbn:de:hebis:30-38092
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,35
Series (Serial Number):CFS working paper series (2006, 35)
Document Type:Working Paper
Language:English
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2007/02/23
Tag:Asset Price Bubbles; Consumption Dynamics; Housing Wealth; Wealth Effect
SWD-Keyword:USA; Unbewegliche Sache; Verbrauch
Issue:November 12, 2006
Pagenumber:23
HeBIS PPN:190341726
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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