Consumption and Savings of First Time House Owners: How Do They Deal with Adverse Income Shocks?
We characterize savings behavior around the point of the first house purchase. Using a panel data set with income and wealth information on Danish first-time house owners we document that households save for the down payment, mortgage to the limit, run down liquid assets at purchase, and adjust to adverse income shocks occurring just after the purchase by reducing consumption. We build a model that replicates these observations, show that the preference parameters are identified from the data, and estimate them. Based on the estimated model house buying significantly reduces the ability to smooth adverse income shocks.
|Date of creation:||Nov 2008|
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- Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000.
"Consumption Over the Life-Cycle,"
CEPR Discussion Papers
2345, C.E.P.R. Discussion Papers.
- James Banks & Richard Blundell & Zoé Oldfield & James P. Smith, 2015.
"House Price Volatility and the Housing Ladder,"
NBER Working Papers
21255, National Bureau of Economic Research, Inc.
- James Banks & Richard Blundell & Zoe Oldfield & James P. Smith, 2010. "House Price Volatility and the Housing Ladder," Working Papers 786, RAND Corporation Publications Department.
- Banks, James & Blundell, Richard & Oldfield, Zoë & Smith, James P., 2010. "House Price Volatility and the Housing Ladder," IZA Discussion Papers 5173, Institute for the Study of Labor (IZA).
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