Household debt, house prices and consumption in the United Kingdom: a quantitative theoretical analysis
Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper we use a calibrated overlapping generations model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain the build-up of debt and the rise in house prices over that period. Our model suggests that lower real interest rates were particularly important. If households expected lower real interest rates to persist, then the model can more than explain the rise in debt and can explain most of the rise in house prices. However, the model leaves a puzzle because it predicts that an unanticipated fall in real interest rates should lead to a consumption boom that did not materialise in the data.
|Date of creation:||10 Mar 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Bank of England, Threadneedle Street, London, EC2R 8AH|
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009.
"Accounting For Changes In The Homeownership Rate,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, 08.
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Accounting for changes in the homeownership rate," FRB Atlanta Working Paper 2007-21, Federal Reserve Bank of Atlanta.
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Accounting for changes in the homeownership rate," Working Papers 2007-034, Federal Reserve Bank of St. Louis.
- 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.
- Matthew Chambers & Carlos Garriga, 2005. "Accounting for Changes in the Homeownership Rate," Computing in Economics and Finance 2005 304, Society for Computational Economics.
- Cerny, Ales & Miles, David K & Schmidt, Lubomir, 2005.
"The Impact of Changing Demographics and Pensions on The Demand for Housing and Financial Assets,"
CEPR Discussion Papers
5143, C.E.P.R. Discussion Papers.
- Černý, Aleš & Miles, David & Schmidt, L'Ubomír, 2010. "The impact of changing demographics and pensions on the demand for housing and financial assets," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(03), pages 393-420, July.
- Victoria Redwood & Merxe Tudela, 2004. "From tiny samples do mighty populations grow? Using the British Household Panel Survey to analyse the household sector balance sheet," Bank of England working papers 239, Bank of England.
- Fang Yang, 2006.
"Consumption along the life cycle: how different is housing?,"
635, Federal Reserve Bank of Minneapolis.
- Fang Yang, 2005. "Consumption Along the Life Cycle: How Different is Housing?," 2005 Meeting Papers 718, Society for Economic Dynamics.
- Karsten Jeske & Dirk Krueger, 2005.
"Housing and the macroeconomy: the role of implicit guarantees for government-sponsored enterprises,"
FRB Atlanta Working Paper
2005-15, Federal Reserve Bank of Atlanta.
- Dirk Krueger & Karsten Jeske, 2005. "Housing and the Macroeconomy: The Role of Implicit Guarantees for Government Sponsored Enterprises," 2005 Meeting Papers 242, Society for Economic Dynamics.
- Dirk Krueger & Karsten Jeske, 2004. "Housing and the Macroeconomy: The Role of Implicit Guarantees for Government Sponsored Enterprises," 2004 Meeting Papers 100, Society for Economic Dynamics.
- Merxe Tudela & Garry Young, 2005. "The determinants of household debt and balance sheets in the United Kingdom," Bank of England working papers 266, Bank of England.
- Mariacristina De Nardi, 2004.
"Wealth Inequality and Intergenerational Links,"
Review of Economic Studies,
Oxford University Press, vol. 71(3), pages 743-768.
- Mariacristina De Nardi, 2002. "Wealth inequality and intergenerational links," Staff Report 314, Federal Reserve Bank of Minneapolis.
- Mariacristina deNardi, 2000. "Wealth Inequality and Intergenerational Links," Econometric Society World Congress 2000 Contributed Papers 0547, Econometric Society.
- James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
- Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
- Fernández-Villaverde, Jesús & Krueger, Dirk, 2011.
"Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?,"
Cambridge University Press, vol. 15(05), pages 725-770, November.
- Jesus Fernandez-Villaverde & Dirk Krueger, 2004. "Consumption and Saving over the Life Cycle: How Important are Consumer Durables?," 2004 Meeting Papers 357b, Society for Economic Dynamics.
- Cubeddu, Luis & Ríos-Rull, José-Víctor, 2003.
"Families as Shocks,"
CEPR Discussion Papers
3924, C.E.P.R. Discussion Papers.
- Whitehouse, Edward & Queisser, Monika, 2007.
"Pensions at a glance: public policies across OECD countries,"
16349, University Library of Munich, Germany.
- Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany.
- Martin Gervais, 1998.
"Housing Taxation and Capital Accumulation,"
UWO Department of Economics Working Papers
9807, University of Western Ontario, Department of Economics.
- Lazear, Edward P & Michael, Robert T, 1980. "Family Size and the Distribution of Real Per Capita Income," American Economic Review, American Economic Association, vol. 70(1), pages 91-107, March.
- Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
- King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, vol. 38(3-4), pages 419-445, April.
- Attanasio, Orazio P & Weber, Guglielmo, 1994. "The UK Consumption Boom of the Late 1980s: Aggregate Implications of Microeconomic Evidence," Economic Journal, Royal Economic Society, vol. 104(427), pages 1269-1302, November.
- Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
- Sebastian Barnes & Gregory Thwaites, 2005. "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England.
- Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0379. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.