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House prices, collateral constraint, and the asymmetric effect on consumption

  • Chen, Nan-Kuang
  • Chen, Shiu-Sheng
  • Chou, Yu-Hsi

This paper investigates the asymmetric effect of house prices on various categories of consumption under constrained and unconstrained regimes. We first present a simple theoretical model based on Iacoviello (2004) and Luengo-Prado (2006), explicitly considering the dual role of housing and linking credit constraints to the behavior of consumption in a pair of aggregate Euler equations. We then estimate a threshold regression model and find that LC-PIH holds only under the unconstrained regime. More importantly, durable consumption exhibit a very strong asymmetric effect in response to changes in house prices, while other categories of consumption do not exhibit this asymmetry.

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File URL: http://www.sciencedirect.com/science/article/pii/S1051-1377(09)00053-9
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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 19 (2010)
Issue (Month): 1 (March)
Pages: 26-37

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Handle: RePEc:eee:jhouse:v:19:y:2010:i:1:p:26-37
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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