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Non-Durable Consumption and Real-Estate Prices in Brazil: Panel-Data Analysis at the State Level


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  • Dias, Victor Pina
  • Diniz, Érica
  • Issler, João Victor


Housing is an important component of wealth for a typical household in manycountries. The objective of this paper is to investigate the effect of real-estate pricevariation on welfare, trying to close a gap between the welfare literature in Braziland that in the U.S., the U.K., and other developed countries. Our first motivationrelates to the fact that real estate is probably more important here than elsewhere asa proportion of wealth, which potentially makes the impact of a price change biggerhere. Our second motivation relates to the fact that real-estate prices boomed inBrazil in the last five years. Prime real estate in Rio de Janeiro and São Paulohave tripled in value in that period, and a smaller but generalized increase has beenobserved throughout the country. Third, we have also seen a recent consumptionboom in Brazil in the last five years. Indeed, the recent rise of some of the poor tomiddle-income status is well documented not only for Brazil but for other emergingcountries as well. Regarding consumption and real-estate prices in Brazil, one cannotimply causality from correlation, but one can do causal inference with an appropriatestructural model and proper inference, or with a proper inference in a reduced-formsetup. Our last motivation is related to the complete absence of studies of this kindin Brazil, which makes ours a pioneering study.We assemble a panel-data set for the determinants of non-durable consumptiongrowth by Brazilian states, merging the techniques and ideas in Campbell and Cocco(2007) and in Case, Quigley and Shiller (2005). With appropriate controls, and panel-data methods, we investigate whether house-price variation has a positive effect on non-durable consumption. The results show a non-negligible significant impact ofthe change in the price of real estate on welfare (consumption), although smaller thenwhat Campbell and Cocco have found. Our findings support the view that the channelthrough which house prices affect consumption is a financial one.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 739.

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Date of creation: 05 Apr 2013
Date of revision:
Handle: RePEc:fgv:epgewp:739

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  1. David Laibson & Johanna Mollerstrom, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Economic Journal, Royal Economic Society, vol. 120(544), pages 354-374, 05.
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