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Accounting for Lifecycle Wealth Accumulation: The Role of Housing Institution

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Author Info
Sang-Wook Stanley Cho () (School of Economics, The University of New South Wales)

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Abstract

This paper constructs a quantitative general equilibrium lifecycle model with uninsurable labor income to account for the differences in the pattern of wealth accumulation across two countries, Korea and the United States. The model incorporates the differences in the housing market institution in the two countries, namely, the mortgage market and the rental market. As a focal point of the model, housing plays multiple roles for households: collateral as well as a source of service flows. The results from the calibrated model can quantitatively explain some empirical findings on the profile of wealth and homeownership in the aggregate as well as over the life cycle. The mortgage market can account for around 60 percent of the differences in the aggregate homeownership ratios in the two countries as well as 23 percent of the differences in the asset portfolio composition. However, the difference in the rental market does not play large role in accounting for the differences in wealth accumulation and homeownership patterns.

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File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2007_27.pdf
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Publisher Info
Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-27.

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Length: 45 pages
Date of creation: Aug 2007
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Handle: RePEc:swe:wpaper:2007-27

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Related research
Keywords: Lifecycle model Consumption Wealth Housing Institution

Other versions of this item:

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand

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  1. Dongchul Cho, 2005. "Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea," NBER Working Papers 11054, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. John Y. Campbell & Joao F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," NBER Working Papers 9759, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Wenli Li & Rui Yao, 2005. "The life-cycle effects of house price changes," Working Papers 05-7, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December. [Downloadable!] (restricted)
  5. Christopher D Carroll & Wendy E Dunn, 1997. "Unemployment Expectations Jumping (Ss) Triggers and Household Balance Sheets," Economics Working Paper Archive 386, The Johns Hopkins University,Department of Economics.
    Other versions:
  6. Mariacristina Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Blackwell Publishing, vol. 71, pages 743-768, 07. [Downloadable!] (restricted)
    Other versions:
  7. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October. [Downloadable!] (restricted)
    Other versions:
  8. Edward L. Glaeser & Jesse M. Shapiro, 2002. "The Benefits of the Home Mortgage Interest Deduction," NBER Working Papers 9284, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March. [Downloadable!] (restricted)
  10. Charles Yuji Horioka & Hideki Fujisaki & Wako Watanabe & Takatsugu Kouno, 2000. "Are Americans More Altruistic than the Japanese? A U.S.-Japan Comparison of Saving and Bequest Motives," NBER Working Papers 7463, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Pedro Silos, 2005. "Housing tenure and wealth distribution in life-cycle economies," Working Paper 2005-25, Federal Reserve Bank of Atlanta. [Downloadable!]
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  12. James Banks & Richard Blundell & James P. Smith, 2002. "Wealth Portfolios in the UK and the US," NBER Working Papers 9128, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Edward L. Glaeser & Jessse M. Shapiro, 2002. "The Benefits of the Home Mortgage Interest Deduction," Harvard Institute of Economic Research Working Papers 1979, Harvard - Institute of Economic Research. [Downloadable!]
  14. Kim, Kyung-Hwan, 2004. "Housing and the Korean economy," Journal of Housing Economics, Elsevier, vol. 13(4), pages 321-341, December. [Downloadable!] (restricted)
  15. Fang Yang, 2005. "Consumption Along the Life Cycle: How Different is Housing?," 2005 Meeting Papers 718, Society for Economic Dynamics. [Downloadable!]
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  16. Yoshiro Miwa & Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2004. "Accounting for Changes in the Homeownership Rate," CIRJE F-Series CIRJE-F-312, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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  17. Attanasio, Orazio P, et al, 1999. "Humps and Bumps in Lifetime Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 22-35, January.
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  18. Brent W. Ambrose & Sunwoong Kim, 2003. "Modeling the Korean Chonsei Lease Contract," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(1), pages 53-74, 03. [Downloadable!] (restricted)
  19. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February. [Downloadable!] (restricted)
    Other versions:
  20. Tokuo Iwaisako, 2003. "Household Portfolios in Japan," NBER Working Papers 9647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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