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Consumption along the life cycle: how different is housing?

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  • Fang Yang

Abstract

Micro data over the life cycle shows two different patterns of consumption of housing and non-housing goods: the consumption profile of non-housing goods is hump-shaped while the consumption profile for housing first increases monotonically and then flattens out. These patterns hold true at each consumption quartile. This paper develops a quantitative, dynamic general equilibrium model of life cycle behavior, which generates consumption profiles consistent with the observed data. Borrowing constraints are essential in explaining the accumulation of housing assets early in life, while transaction costs are crucial in generating the slow downsizing of the housing assets later in life. The bequest motives play a role in determining total life time wealth, but not the housing profile.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 635.

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Date of creation: 2006
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Handle: RePEc:fip:fedmwp:635

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Keywords: Consumption (Economics);

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Citations

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Cited by:
  1. Fang Yang, 2006. "Accounting for the Heterogeneity in Retirement Wealth," 2006 Meeting Papers 94, Society for Economic Dynamics.
  2. Marco Cagetti & Mariacristina De Nardi, 2005. "Wealth inequality: data and models," Working Paper Series WP-05-10, Federal Reserve Bank of Chicago.
  3. Arce, Oscar & López-Salido, J David, 2006. "House Prices, Rents and Interest Rates Under Collateral Constraints," CEPR Discussion Papers 5689, C.E.P.R. Discussion Papers.
  4. Waldron, Matt & Zampolli, Fabrizio, 2010. "Household debt, house prices and consumption in the United Kingdom: a quantitative theoretical analysis," Bank of England working papers 379, Bank of England.
  5. Sang-Wook Stanley Cho, 2007. "Household Wealth Accumulation and Portfolio Choices in Korea," Discussion Papers 2007-26, School of Economics, The University of New South Wales.
  6. Cho, Sang-Wook (Stanley), 2012. "Accounting For Life-Cycle Wealth Accumulation: The Role Of Housing Institution," Macroeconomic Dynamics, Cambridge University Press, vol. 16(04), pages 493-517, September.
  7. Harald Uhlig & Stefan Ried, 2009. "The Macroeconomics of Real Estate," 2009 Meeting Papers 429, Society for Economic Dynamics.

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