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Impending U.S. spending bust?: the role of housing wealth as borrowing collateral

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  • Daniel Cooper
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    Abstract

    Using data from the Panel Study of Income Dynamics, this paper considers the mechanism by which changing house values impact U.S. household spending. The results suggest that house values affect consumption by serving as collateral for households to borrow against to smooth their spending. The results show that the consumption of households who need to borrow against their home equity increases by roughly 11 cents per $1.00 increase in their housing wealth. Changing house values, however, have little effect on the expenditures of households who do not need to borrow to finance their consumption. Based on these results, the paper further finds that declining housing wealth has a relatively small implied negative impact on aggregate consumption expenditures.

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    File URL: http://www.bostonfed.org/economic/ppdp/2009/ppdp0909.htm
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    File URL: http://www.bostonfed.org/economic/ppdp/2009/ppdp0909.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Boston in its series Public Policy Discussion Paper with number 09-9.

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    Date of creation: 2009
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    Handle: RePEc:fip:fedbpp:09-9

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    Related research

    Keywords: Home equity loans;

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    Cited by:
    1. Bearse, Peter & Cardak, Buly/A & Glomm, Gerhard & Ravikumar, B, 2009. "Why do education vouchers fail at the ballot box?," MPRA Paper 34131, University Library of Munich, Germany, revised Sep 2011.
    2. Byron Lutz & Raven Molloy & Hui Shan, 2010. "The housing crisis and state and local government tax revenue: five channels," Finance and Economics Discussion Series 2010-49, Board of Governors of the Federal Reserve System (U.S.).
    3. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future," SERC Discussion Papers 0049, Spatial Economics Research Centre, LSE.
    4. 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.

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