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Household wealth accumulation and portfolio choices in Korea

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  • Cho, Sang-Wook (Stanley)

Abstract

This paper constructs a quantitative lifecycle model with uninsurable labor income and housing return risk to investigate how Korean households make saving and portfolio decisions. The model not only incorporates the special roles housing plays in the portfolio of households: collateral, a source of service flows, as well as a source of potential capital gains or losses, but also adds to existing models of wealth accumulation some unique institutional features present in Korea, namely the rental system ('chonsae') and the lack of a mortgage system. When the model is calibrated to match the Korean economy, several key features of the data are better able to be reproduced. The paper also analyzes the role of institutional features by comparing several alternative housing market arrangements to assess their impact on wealth accumulation, portfolio choices, and homeownership. A 10 percentage points reduction in down-payment requirement is associated with approximately 1 percentage point increase in the aggregate homeownership ratio in Korea. Lower down-payment also increases the fraction of aggregate wealth held in housing assets but lowers aggregate net worth with mixed demographic implications.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 19 (2010)
Issue (Month): 1 (March)
Pages: 13-25

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Handle: RePEc:eee:jhouse:v:19:y:2010:i:1:p:13-25

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Web page: http://www.elsevier.com/locate/inca/622881

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Keywords: Lifecycle model Wealth Housing Homeownership Korea;

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Citations

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Cited by:
  1. Sang-Wook Stanley Cho & Johanna Francis, 2008. "Tax Treatment of Owner Occupied Housing and Wealth Inequality," Fordham Economics Discussion Paper Series dp2008-17, Fordham University, Department of Economics.
  2. Kim, Jinwon, 2013. "Financial repression and housing investment: An analysis of the Korean chonsei," Journal of Housing Economics, Elsevier, vol. 22(4), pages 338-358.
  3. Wei-Bin Zhang, 2011. "Economic growth with space and fiscal policies with housing and public goods," Journal of Economic Studies, Emerald Group Publishing, vol. 38(4), pages 452-482, September.

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