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Accounting For Life-Cycle Wealth Accumulation: The Role Of Housing Institution

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  • Cho, Sang-Wook (Stanley)

Abstract

This paper constructs a quantitative general equilibrium lifecycle model with uninsurable labor income to account for the differences in the pattern of wealth accumulation across two countries, Korea and the United States. The model incorporates the differences in the housing market institution in the two countries, namely, the mortgage market and the rental market. As a focal point of the model, housing plays multiple roles for households: collateral as well as a source of service flows. The results from the calibrated model can quantitatively explain some empirical findings on the profile of wealth and homeownership in the aggregate as well as over the life cycle. The mortgage market can account for around 60 percent of the differences in the aggregate homeownership ratios in the two countries as well as 23 percent of the differences in the asset portfolio composition. However, the difference in the rental market does not play large role in accounting for the differences in wealth accumulation and homeownership patterns.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 16 (2012)
Issue (Month): 04 (September)
Pages: 493-517

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Handle: RePEc:cup:macdyn:v:16:y:2012:i:04:p:493-517_00

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