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Housing, Household Portfolio, and Intertemporal Elasticity of Substitution: Evidence from the Consumer Expenditure Survey

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Author Info
Fuad Hasanov (Oakland University)

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Abstract

This paper investigates whether the inclusion of housing in a household portfolio is important to the household’s intertemporal decision making. Households hold portfolios of assets rather than a Treasury bill and/or a stock index and make their spending decisions based on expected total returns of an array of assets. The total returns account for capital gains, taxes, and inflation. In addition to financial assets such as stocks and bonds, we incorporate a real asset, residential housing, into a household portfolio. In particular, we estimate the intertemporal elasticity of substitution (IES), that is, how a change in asset or portfolio return affects household’s consumption growth, using a sample of households from the Consumer Expenditure Survey. Since changes in housing return can affect consumption of households over time, we investigate whether the inclusion of housing in the household portfolio provides different IES estimates. Moreover, utilizing a household-level data set, we estimate IES parameters for different groups of assetholders. Our results indicate that the housing return positively affects consumption growth, and housing is an important asset to account for in the household portfolio.

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Paper provided by EconWPA in its series Macroeconomics with number 0510011.

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Length: 35 pages
Date of creation: 11 Oct 2005
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Handle: RePEc:wpa:wuwpma:0510011

Note: Type of Document - pdf; pages: 35
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Web page: http://129.3.20.41

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Related research
Keywords: intertemporal elasticity of substitution; intertemporal choice; consumption; housing; household portfolio;

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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
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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