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The Impact of the Housing Market Boom and Bust on Consumption Spending

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  • Jeremy A Leonard
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    Abstract

    While econometric evidence for the United States has consistently shown that increases in real estate wealth induce additional consumption, it does not directly speak to the effect of a substantial decrease in real estate wealth. This paper examines the real-estate wealth-consumption relationship over the past half century with a particular focus on the sharp decline in 2006–08, and finds that the wealth effect in the recent down market is significantly larger than in an up market. Additionally, wealth changes seem only to affect consumption of services and nondurable goods; there is virtually no impact on durable-goods consumption.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Business Economics.

    Volume (Year): 45 (2010)
    Issue (Month): 2 (April)
    Pages: 83-93

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    Handle: RePEc:pal:buseco:v:45:y:2010:i:2:p:83-93

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    Web page: http://www.palgrave-journals.com/

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    Cited by:
    1. Caporale, Guglielmo Maria & Costantini, Mauro & Paradiso, Antonio, 2013. "Re-examining the decline in the US saving rate: The impact of mortgage equity withdrawal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 215-225.
    2. Paradiso, Antonio & Casadio, Paolo & Rao, B. Bhaskara, 2012. "US inflation and consumption: A long-term perspective with a level shift," Economic Modelling, Elsevier, vol. 29(5), pages 1837-1849.
    3. Beatrice D. Simo-Kengne & Stephen M. Miller & Rangan Gupta & Goodness C. Aye, 2013. "Time-Varying Effects of Housing and Stock Prices on U.S. Consumption," Working papers 2013-13, University of Connecticut, Department of Economics.
    4. Chad R. Wilkerson & Megan D. Williams, 2011. "Booms and busts in household wealth: implications for Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.

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