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Consumption, house prices, and collateral constraints: a structural econometric analysis

  • Iacoviello, Matteo

If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and consumption possibilities for a fraction of the households. I then derive and estimate an aggregate consumption Euler equation, and estimate its structural parameters. The results provide robust support for housing prices as a driving force of consumption fluctuations.

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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 13 (2004)
Issue (Month): 4 (December)
Pages: 304-320

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Handle: RePEc:eee:jhouse:v:13:y:2004:i:4:p:304-320
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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