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House Prices And Consumption Inequality

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  • Ben Etheridge

Abstract

I characterize how house price shocks affect consumption inequality using a life cycle model of housing and nonhousing consumption with incomplete markets. I derive analytical expressions for the dynamics of inequalities and use these to analyze large house prices swings seen in the United Kingdom. I show that movements in consumption inequality were large, that they correspond with the theoretical predictions qualitatively, and that the model explains a large fraction of the movements quantitatively. I demonstrate the accuracy of this analysis using an extended model's full nonlinear solution. Finally, accounting for house price shocks alters estimates of labor–income risks using cross‐sectional data.

Suggested Citation

  • Ben Etheridge, 2019. "House Prices And Consumption Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1781-1822, November.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:4:p:1781-1822
    DOI: 10.1111/iere.12404
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    Cited by:

    1. Daminato, Claudio & Pistaferri, Luigi, 2020. "Family labor supply and asset returns," European Economic Review, Elsevier, vol. 124(C).

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