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Modelling Housing and Consumers' Spending under Liquidity and Borrowing Constraints: Some Stylised Facts from UK Housing Market

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  • Germana Corrado

    (Department of Economics, Faculty of Economics, University of Rome Tor Vergata)

Abstract

In recent years there has been increasing interest in the role of the housing market. As housing is a major component of individuals’ wealth it is important to understand how house price dynamics may affect consumption. This work focuses on the financial accelerator approach through the ‘collateral’ channel of housing and aims at disentangling the effect of housing in the lifetime decisions of consumption of two groups of households. The first group comprises liquidity constrained households while the second group comprises households who face both liquidity and credit constraints. The model shows that when a subset of households is doubly constrained the resulting distortion towards housing consumption is larger than that found by other life-cycle models with only collateral constrained agents.

Suggested Citation

  • Germana Corrado, 2007. "Modelling Housing and Consumers' Spending under Liquidity and Borrowing Constraints: Some Stylised Facts from UK Housing Market," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 10(2), pages 112-137, Winter.
    • Handle: RePEc:ekn:ekonom:v:10:y:2007:i:2:p:112-137
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    Cited by:

    1. Zeng, Jhih-Hong & Peng, Chi-Lu & Chen, Ming-Chi & Lee, Chien-Chiang, 2013. "Wealth effects on the housing markets: Do market liquidity and market states matter?," Economic Modelling, Elsevier, vol. 32(C), pages 488-495.
    2. Philip Arestis & Ana Rosa González-Martínez, 2015. "Residential Construction Activity in OECD Economies," Manchester School, University of Manchester, vol. 83(4), pages 451-474, July.
    3. Philip Arestis & Ana Rosa Gonzalez, 2013. "Endogenous Bank Credit and Its Link to Housing in OECD Countries," Economics Working Paper Archive wp_750, Levy Economics Institute.

    More about this item

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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