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Housing Collateral and Consumption Insurance Across US Regions

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  • Stijn Van Nieuwerburgh
  • Hanno Lustig

Abstract

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of consumption growth. In the model, a decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, reduces the amount of income risk shared and increases the conditional market price of risk. Regional risk-sharing patterns for US metropolitan areas lend direct support to the housing collateral channel. In times with a high housing collateral ratio, consumption growth is more strongly correlated across regions. Time-variation in the degree of risk-sharing induced by house price changes sheds new light on the consumption correlation puzzle

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 548.

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Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:548

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: risk-sharing; housing;

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Cited by:
  1. Hanno Lustig, 2004. "Housing Collateral, Consumption Insurance and Risk Premia: an Empirical Perspective (joint with Stijn Van Nieuwerburgh), forthcoming Journal of Finance," UCLA Economics Online Papers 300, UCLA Department of Economics.
  2. Hanno Lustig, 2004. "Can Housing Collateral Explain Long-Run Swings in Asset Returns? (joint with Stijn Van Nieuwerburgh)," UCLA Economics Online Papers 322, UCLA Department of Economics.
  3. John Y. Campbell & Joao F. Cocco, 2004. "How Do House Prices Affect Consumption? Evidence From Micro F. Data," Harvard Institute of Economic Research Working Papers 2045, Harvard - Institute of Economic Research.
  4. Andrew Benito & Haroon Mumtaz, 2006. "Consumption excess sensitivity, liquidity constraints and the collateral role of housing," Bank of England working papers 306, Bank of England.
  5. Hanno N. Lustig & Stijn G. Van Nieuwerburgh, 2005. "Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective," Journal of Finance, American Finance Association, vol. 60(3), pages 1167-1219, 06.
  6. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
  7. Hanno Lustig & Stijn Van Nieuwerburgh, 2004. "A Theory of Housing Collateral, Consumption Insurance and Risk Premia," NBER Working Papers 10955, National Bureau of Economic Research, Inc.

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