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Is Housing Wealth an “ATM”? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates

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  • Vladimir Klyuev
  • Paul Mills

Abstract

This paper examines the roles that increasing personal wealth and home equity withdrawal (HEW) have had in the decline in the personal saving rate in the United States. It does so by comparing the U.S. experience with that of Australia, Canada, and the United Kingdom. Mortgage market liberalization and innovation reduce household cash-flow and collateral constraints while making housing wealth more liquid as HEW becomes easier over time. Regression analysis indicates the expected negative relationship between U.S. saving and net worth, with a somewhat smaller coefficient than in previous empirical studies. Changes in HEW are found not to have a significant impact on U.S. saving in the short or long run. In that sense, housing wealth is not an “ATM.”IMF Staff Papers (2007) 54, 539–561. doi:10.1057/palgrave.imfsp.9450018

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Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 54 (2007)
Issue (Month): 3 (July)
Pages: 539-561

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Handle: RePEc:pal:imfstp:v:54:y:2007:i:3:p:539-561

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  1. Allen Frankel, 2006. "Prime or not so prime? An exploration of US housing finance in the new century," BIS Quarterly Review, Bank for International Settlements, March.
  2. Alan Greenspan & James Kennedy, 2005. "Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences," Finance and Economics Discussion Series 2005-41, Board of Governors of the Federal Reserve System (U.S.).
  3. Bank for International Settlements, 2006. "Housing finance in the global financial market," CGFS Papers, Bank for International Settlements, number 26, July.
  4. John Krainer & Milton Marquis, 2003. "Mortgage refinancing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
  5. Bennett, Paul & Peach, Richard & Peristiani, Stavros, 2001. "Structural Change in the Mortgage Market and the Propensity to Refinance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 955-75, November.
  6. Laurence Boone & Nathalie Girouard & Isabelle Wanner, 2001. "Financial Market Liberalisation, Wealth and Consumption," OECD Economics Department Working Papers 308, OECD Publishing.
  7. Margaret M. McConnell & Richard W. Peach & Alex Al-Haschimi, 2003. "After the refinancing boom: will consumers scale back their spending?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Dec).
  8. Glenn Canner & Karen Dynan & Wayne Passmore, 2002. "Mortgage refinancing in 2001 and early 2002," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 469-481.
  9. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
  10. Pietro Catte & Nathalie Girouard & Robert W.R. Price & Christophe André, 2004. "Housing Markets, Wealth and the Business Cycle," OECD Economics Department Working Papers 394, OECD Publishing.
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