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Comparing Wealth Effects: The Stock Market versus The Housing Market

  • Case, Karl E.
  • Quigley, John M.
  • Shiller, Robert J.

We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating consumption to income and wealth measures. We find a statistically significant and rather large effect of housing wealth upon household consumption.

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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt44k6g6vx.

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Date of creation: 01 Oct 2001
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Handle: RePEc:cdl:econwp:qt44k6g6vx
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  1. David Genesove & Christopher Mayer, 2001. "Loss Aversion And Seller Behavior: Evidence From The Housing Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1233-1260, November.
  2. Jonathan Skinner, 1989. "Housing Wealth and Aggregate Saving," NBER Working Papers 2842, National Bureau of Economic Research, Inc.
  3. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
  4. Karl E. Case & Christopher J. Mayer, 1995. "Housing price dynamics within a metropolitan area," Working Papers 95-3, Federal Reserve Bank of Boston.
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  7. Arthur Kennickell & Annamaria Lusardi, 2004. "Disentangling the Importance of the Precautionary Saving Mode," NBER Working Papers 10888, National Bureau of Economic Research, Inc.
  8. de La Paz, Paloma Taltavull, 2001. "Housing and Consumption in Spain," ERES eres2001_283, European Real Estate Society (ERES).
  9. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
  10. Engelhardt Gary V., 1994. "House Prices and the Decision to Save for Down Payments," Journal of Urban Economics, Elsevier, vol. 36(2), pages 209-237, September.
  11. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
  12. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  13. Campbell, John & Cocco, Joao, 2007. "How Do House Prices Affect Consumption? Evidence from Micro Data," Scholarly Articles 3122600, Harvard University Department of Economics.
  14. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  15. Martha Starr-McCluer, 1998. "Stock market wealth and consumer spending," Finance and Economics Discussion Series 1998-20, Board of Governors of the Federal Reserve System (U.S.).
  16. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
  17. Muellbauer, J & Murphy, A, 1996. "Booms and Busts in the UK Housing Market," Economics Papers 125, Economics Group, Nuffield College, University of Oxford.
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  19. repec:dgr:kubcen:99.34 is not listed on IDEAS
  20. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February.
  21. Ohtake, F. & Horioka, C.Y., 1995. "Saving Motives in Japan," ISER Discussion Paper 0392, Institute of Social and Economic Research, Osaka University.
  22. Jonathan Skinner, 1991. "Housing and Saving in the United States," NBER Working Papers 3874, National Bureau of Economic Research, Inc.
  23. Bhatia, Kul B, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 437-44, May.
  24. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  25. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
  26. Elliott, J Walter, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 509-35, November.
  27. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  28. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
  29. Sheiner Louise, 1995. "Housing Prices and the Savings of Renters," Journal of Urban Economics, Elsevier, vol. 38(1), pages 94-125, July.
  30. Gary V. Engelhardt & Christopher J. Mayer, 1994. "Gifts for home purchase and housing market behavior," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 47-58.
  31. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
  32. Karen E. Dynan & Dean M. Maki, 2001. "Does stock market wealth matter for consumption?," Finance and Economics Discussion Series 2001-23, Board of Governors of the Federal Reserve System (U.S.).
  33. Palle S. Andersen & Neale Kennedy, 1994. "Household saving and real house prices: an international perspective," BIS Working Papers 20, Bank for International Settlements.
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