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Wealth, Composition, Housing, Income, and Consumption

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Author Info

  • William Hardin

    ()
    (Department of Finance and Real Estate, Florida International University)

  • Sheng Guo

    ()
    (Department of Economics, Florida International University)

Abstract

The present research, which covers the latest residential boom and bust cycle, highlights that there are no uniform or constant time invariant wealth, housing, and income relations. Even more important, wealth composition is shown to be a significant determinant of consumption. The marginal effects of housing wealth, financial wealth, and income differ substantially with wealth composition. Households with the highest percentage of net worth in financial assets have much lower income effects, have substantially higher marginal effects associated with stock holdings, and have housing equity effects that differ noticeably from other households. Income effects for groups with the smallest amounts of relative financial wealth are dramatically higher than for households with greater financial wealth. Wealth and its composition affect consumption.

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File URL: http://economics.fiu.edu/research/working-papers/2012/wealth-composition-housing-income-and-consumption/12-01.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1201.

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Length: 34 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:fiu:wpaper:1201

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Keywords: Consumption; Income; Wealth Composition; Wealth Effect; Housing Effect;

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References

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  1. Jiri Slacalek, 2006. "What Drives Personal Consumption?: The Role of Housing and Financial Wealth," Discussion Papers of DIW Berlin 647, DIW Berlin, German Institute for Economic Research.
  2. Bostic, Raphael & Gabriel, Stuart & Painter, Gary, 2009. "Housing wealth, financial wealth, and consumption: New evidence from micro data," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 79-89, January.
  3. John D. Benjamin & Peter Chinloy & G. Donald Jud, 2004. "Why do Households Concentrate Their Wealth in Housing?," Journal of Real Estate Research, American Real Estate Society, vol. 26(4), pages 329-344.
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  9. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
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  11. Sanford J Grossman & Guy Laroque, 2003. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Levine's Working Paper Archive 618897000000000803, David K. Levine.
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  14. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," NBER Working Papers 12746, National Bureau of Economic Research, Inc.
  15. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  16. N. Kundan Kishor, 2007. "Does Consumption Respond More to Housing Wealth Than to Financial Market Wealth? If So, Why?," The Journal of Real Estate Finance and Economics, Springer, vol. 35(4), pages 427-448, November.
  17. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November.
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