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Housing, Credit and Consumer Expenditure

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Muellbauer, John

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Abstract

Many factors have contributed to the development of credit markets, easing access of households to credit. This paper considers the implications of easier credit for the influence of higher house prices on consumer expenditure. It argues that with poorly developed credit markets, the effect is likely to be negative, but becomes positive as access to housing collateral increases and down-payments for first time home buyers fall in relation to values. The implications for differences between countries and changes in consumer behaviour over time are explored. Previous studies are reviewed: the omission of credit liberalization and other controls has often biased estimates of housing ‘wealth’ effects on consumption. New empirical estimates for the UK and US suggest that there was no housing ‘wealth effect’ before credit market liberalization, but that the housing collateral effect is now significant, larger than the stock market wealth effect, and about twice as large in the US as the UK.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6782.

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Date of creation: Apr 2008
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Handle: RePEc:cpr:ceprdp:6782

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Related research
Keywords: consumer expenditure; credit channel; housing wealth;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Calomiris & Stanley D. Longhofer & William Miles, 2009. "The (Mythical?) Housing Wealth Effect," NBER Working Papers 15075, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. José De Gregorio, 2008. "The Tensions of the World Economy," Economic Policy Papers Central Bank of Chile 27, Central Bank of Chile. [Downloadable!]
  3. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings, Federal Reserve Bank of Kansas City, pages 149-233. [Downloadable!]
    Other versions:
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