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House Prices and Risk Sharing

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  • Hryshko, Dmytro
  • Luengo-Prado, Maria Jose
  • Sorensen, Bent E

Abstract

Using data from the Panel Study of Income Dynamics, we show that homeowners are able to maintain a high level of consumption following job loss (or disability) in periods of rising local house prices while the consumption drop for homeowners who lose their job in times of lower house prices is substantial. The results are consistent with homeowners being able to access wealth gains when housing appreciates as witnessed by their ability to smooth consumption more than renters. We calibrate and simulate a model of endogenous homeownership and consumption which is able to reproduce the patterns in the data quite well.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7894.

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Date of creation: Jun 2010
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Handle: RePEc:cpr:ceprdp:7894

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Keywords: consumption smoothing; PSID; regional house prices;

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References

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  1. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
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  3. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  4. Bent E. Sørensen & Maria Jose Luengo-Prado, 2005. "What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?," Working Papers 2005-03, Department of Economics, University of Houston.
  5. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 646, Econometric Society.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Houses are a poor way to share risk
    by Economic Logician in Economic Logic on 2009-11-02 15:26:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2011. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," CFS Working Paper Series 2011/27, Center for Financial Studies (CFS).
  2. Michael Amior & Jonathan Halket, 2011. "Do Households Use Homeownership To Insure Themselves? Evidence across US Cities," 2011 Meeting Papers 276, Society for Economic Dynamics.
  3. Maria Teresa Punzi, 2013. "Housing Market and Current Account Imbalances in the International Economy," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 601-613, 09.
  4. Partridge, Mark D. & Rickman, Dan S. & Olfert, M. Rose & Ali, Kamar, 2012. "Dwindling U.S. internal migration: Evidence of spatial equilibrium or structural shifts in local labor markets?," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 375-388.
  5. Rodolfo G. Campos & Iliana Reggio, 2013. "Measurement error in imputation procedures," Banco de Espa�a Working Papers 1322, Banco de Espa�a.
  6. Paciorek, Andrew & Sinai, Todd, 2012. "Does home owning smooth the variability of future housing consumption?," Journal of Urban Economics, Elsevier, vol. 71(2), pages 244-257.
  7. Cristini, Annalisa & Sevilla, Almudena, 2013. "Do House Prices Affect Consumption? A Re-assessment of the Wealth Hypothesis," IZA Discussion Papers 7576, Institute for the Study of Labor (IZA).
  8. Daniel Cooper & María José Luengo-Prado, 2011. "House price growth when kids are teenagers: a path to higher intergenerational achievement?," Working Papers 11-6, Federal Reserve Bank of Boston.
  9. Almudena Sevilla Sanz & Annalisa Cristini, 2011. "Do House Prices Affect Consumption? A Comparison Exercise," Economics Series Working Papers 589, University of Oxford, Department of Economics.

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