Housing, consumption, and credit constraints
Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2004 - Business & Economics - 46 pages
"I test the credit-market effects of housing wealth shocks by estimating the consumption elasticity of house price shocks among households in different age quintiles. Younger households face faster expected income growth and hence would like to borrow more than older households. I estimate consumption elasticities from housing wealth by age quintile to be (4; 0; 3; 8; 3) percent. As predicted by theory, the youngest group has a higher elasticity of consumption than the next two age quintiles. That the consumption of the age quintile on the verge of retirement is responsive to housing wealth is also not surprising: I show that these households are likeliest to "downsize" their house and thus realize any capital gains"--Abstract.
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age quintile Ana Aizcorbe Andreas Lehnert Andrew Cohen April Asset Athanasios Orphanides August Berger Brian Sack buffer stock Carroll Chebyshev polynomial Chris Downing Consumer Expenditure Survey consumption growth Covitz Data dataset deﬂated downsizing Dummies Economics Discussion Series effect of housing elasticity of consumption elasticity of housing estimated elasticities Evidence February Federal Reserve Board ﬁgure ﬁnd ﬁrst ﬁt ﬁxed effects food consumption food expenditures gives OLS estimates head’s age home equity homeowners House Price Gains house value growth household heads household-years housing wealth gains housing wealth shocks income growth Inﬂation Interest Rates July Kevin Moore marginal propensity Median Model Monetary Policy move November observations October older households paper passive housing Permanent Income Controls precautionary saving propensity to consume PSID reﬁnancing renters sample of stable sample statistics saving September 2002 Skinner speciﬁcation Stable Families stable households stock market Table gives OLS Takeshi Kimura tercile variables wealth effects younger households