Does Consumption Respond More to Housing Wealth Than to Financial Market Wealth?
AbstractThe strong consumption growth in a period of falling stock market and a moderate recession in the U.S. has sparked off a debate about the role of housing wealth as one of the determinants of consumption. The literature is divided over the issue whether the effect of change in the financial wealth on consumption is lower than the change in housing wealth. In this paper using Gonzalo-Ng (2001) variance decomposition framework we have shown that the net effect of housing wealth increase on consumption is higher than financial wealth. Using time varying parameter model we have also found that the housing wealth effect has increased overtime. This reflects the deregulation of the housing and mortgage market in US over the last three decades as the housing market has become more efficient.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 604.
Date of creation: 11 Aug 2004
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Consumption; Wealth Effect; Beverdige-Nelson Cycle; State Space Model; Kalman Filter; Cointegration;
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- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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- Claessens, Stijn & Kose, M. Ayhan & Terrones, Marco E., 2012.
"How do business and financial cycles interact?,"
Journal of International Economics,
Elsevier, vol. 87(1), pages 178-190.
- Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2011. "How Do Business and Financial Cycles Interact?," CEPR Discussion Papers 8396, C.E.P.R. Discussion Papers.
- Marco Terrones & M. Ayhan Kose & Stijn Claessens, 2011. "How Do Business and Financial Cycles Interact?," IMF Working Papers 11/88, International Monetary Fund.
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