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House Price Gains and U.S. Household Spending from 2002 to 2006

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  • Atif Mian
  • Amir Sufi

Abstract

We examine the effect of rising U.S. house prices on borrowing and spending from 2002 to 2006. There is strong heterogeneity in the marginal propensity to borrow and spend. Households in low income zip codes aggressively liquefy home equity when house prices rise, and they increase spending substantially. In contrast, for the same rise in house prices, households living in high income zip codes are unresponsive, both in their borrowing and spending behavior. The entire effect of housing wealth on spending is through borrowing, and, under certain assumptions, this spending represents 0.8% of GDP in 2004 and 1.3% of GDP in 2005 and 2006. Households that borrow and spend out of housing gains between 2002 and 2006 experience significantly lower income and spending growth after 2006.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20152.

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Date of creation: May 2014
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Handle: RePEc:nbr:nberwo:20152

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  1. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 739-764, June.
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  3. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. Olivier Coibion & Yuriy Gorodnichenko, 2010. "Monetary Policy, Trend Inflation and the Great Moderation:An Alternative Interpretation," Working Papers, Department of Economics, College of William and Mary 94, Department of Economics, College of William and Mary.
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  6. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.
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  8. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(6), pages 1179-1207, December.
  9. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43(1), pages 55-79, 02.
  10. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(4), pages 1449-1496, November.
  11. Daniel Aaronson & Sumit Agarwal & Eric French, 2012. "The Spending and Debt Response to Minimum Wage Hikes," American Economic Review, American Economic Association, American Economic Association, vol. 102(7), pages 3111-39, December.
  12. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," Working Papers, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. 136, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  13. Christopher D. Carroll & Miles S. Kimball, 1995. "On the Concavity of the Consumption Function," Macroeconomics, EconWPA 9503003, EconWPA.
  14. Atif R. Mian & Amir Sufi, 2009. "House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis," NBER Working Papers 15283, National Bureau of Economic Research, Inc.
  15. Karl E. Case & John M. Quigley & Robert J. Shiller, 2013. "Wealth Effects Revisited: 1975-2012," NBER Working Papers 18667, National Bureau of Economic Research, Inc.
  16. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
  17. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(3), pages 1253-1296, August.
  18. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, American Economic Association, vol. 89(4), pages 947-958, September.
  19. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
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  1. Le château de dette
    by ? in D'un champ l'autre on 2014-05-29 23:14:00

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