Collaterality and the Housing Wealth Effect
AbstractThe empirical literature has demonstrated that housing assets exhibit larger wealth effects than stocks (or, more broadly, financial assets), which is often interpreted as a larger MPC (Marginal Propensity of Consumption) out of housing wealth. Still, the question remains as to whether this stylized fact has anything to do with the collaterality of housing assets. We build a household consumption and portfolio choice model with two risky assets, housing and stocks, whereby housing can be used as collateral to borrow against. The optimizing agent’s preference and investment opportunity set generate implications of di erent MPCs for groups characterized by their respective asset/debt portfolios. Under calibrated parameters from macro data, the model exhibits the highest MPC for households who simultaneously borrow against housing asset and invest in stocks. We examine the Panel Study of Income Dynamics (PSID) micro data of homeowners and find no evidence of this implied collateral e ect on non-durable consumption.
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Bibliographic InfoPaper provided by Florida International University, Department of Economics in its series Working Papers with number 0914.
Length: 37 pages
Date of creation: Dec 2009
Date of revision:
wealth effects; consumption; portfolio choice; housing; collateral; borrowing constraints; household debt;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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