Resource title

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

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Resource description

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.

Resource author

Christopher D. Carroll, Misuzu Otsuka, Jirka Slacalek

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25501

Resource license

Adapt according to the presented license agreement and reference the original author.