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Comparing Wealth Effects: The Stock Market versus the Housing Market

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Author Info
Karl E. Case (Wellesley College)
John M. Quigley (University of California, Berkeley)
Robert J. Shiller () (Cowles Foundation, Yale University)

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Abstract

We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regressions relating consumption to income and wealth measures, finding a statistically significant and rather large effect of housing wealth upon household consumption.

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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1335.

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Length: 25 pages
Date of creation: Oct 2001
Date of revision:
Publication status: Published in Advances in Macroeconomics (2005) 5(1): 1–34
Handle: RePEc:cwl:cwldpp:1335

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Related research
Keywords: Consumption; nonfinancial wealth; housing market; real estate;

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
G1 - Financial Economics - - General Financial Markets

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References listed on IDEAS
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. Gary V. Engelhardt & Christopher J. Mayer, 1994. "Gifts for home purchase and housing market behavior," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 47-58.
  2. Engelhardt Gary V., 1994. "House Prices and the Decision to Save for Down Payments," Journal of Urban Economics, Elsevier, vol. 36(2), pages 209-237, September. [Downloadable!] (restricted)
  3. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Oxford University Press, vol. 26(4), pages 609-43, October.
  4. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November. [Downloadable!] (restricted)
  5. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December. [Downloadable!] (restricted)
  6. Poterba, J.M. & Samwick, A.A., 1996. "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Working papers 96-2, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March. [Downloadable!] (restricted)
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  8. Karl E. Case & Christopher J. Mayer, 1995. "Housing price dynamics within a metropolitan area," Working Papers 95-3, Federal Reserve Bank of Boston. [Downloadable!]
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  9. 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. [Downloadable!] (restricted)
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  10. John Y. Campbell & Joao F. Cocco, 2004. "How do house prices affect consumption? Evidence from micro data," 2004 Meeting Papers 304, Society for Economic Dynamics.
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  11. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March. [Downloadable!] (restricted)
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  12. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter. [Downloadable!] (restricted)
  13. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July. [Downloadable!] (restricted)
  14. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," CEPR Discussion Papers 1615, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December. [Downloadable!] (restricted)
  16. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Jonathan Skinner, 1989. "Housing Wealth and Aggregate Saving," NBER Working Papers 2842, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, vol. 6(2), pages 119-136, June. [Downloadable!] (restricted)
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  19. Sheiner Louise, 1995. "Housing Prices and the Savings of Renters," Journal of Urban Economics, Elsevier, vol. 38(1), pages 94-125, July. [Downloadable!] (restricted)
  20. Jonathan S. Skinner, 1994. "Housing and Saving in the United States," NBER Chapters, in: Housing Markets in the U.S. and Japan, pages 191-214 National Bureau of Economic Research, Inc. [Downloadable!]
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  21. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring. [Downloadable!] (restricted)
  22. Bhatia, Kul B, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 437-44, May. [Downloadable!] (restricted)
  23. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I. [Downloadable!] (restricted)
  24. Karen E. Dynan & Dean M. Maki, 2001. "Does stock market wealth matter for consumption?," Finance and Economics Discussion Series 2001-23, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  25. Hilary W. Hoynes & Daniel L. McFadden, 1996. "The Impact of Demographics on Housing and Nonhousing Wealth in the United States," NBER Chapters, in: The Economic Effects of Aging in the United States and Japan, pages 153-194 National Bureau of Economic Research, Inc. [Downloadable!]
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  26. Martha Starr-McCluer, 1998. "Stock market wealth and consumer spending," Finance and Economics Discussion Series 1998-20, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  27. Yoshikawa, Hiroshi & Ohtaka, Fumio, 1989. "An analysis of female labor supply, housing demand and the saving rate in Japan," European Economic Review, Elsevier, vol. 33(5), pages 997-1023, May. [Downloadable!] (restricted)
  28. Guido W. Imbens & Donald B. Rubin & Bruce Sacerdote, 1999. "Estimating the Effects of Unearned Income on Labor Supply, Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," NBER Working Papers 7001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  29. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June. [Downloadable!] (restricted)
  30. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February. [Downloadable!] (restricted)
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