Do House Prices Affect Consumption? A Comparison Exercise
This paper undertakes a comparison exercise to disentangle what drives the opposite findings regarding the effect of house prices on consumption documented in two papers using the same data set for the UK. On the one hand, Campbell and Cocco (2007) find that old owners are the most benefited by a house price increase and young renters the least, confirming the so-called wealth hypothesis. On the other hand, Attanasio, Blow, Hamilton, and Leicester (2009) find that house prices have the same impact on consumption across age groups, consistent with the so-called common factor hypothesis. We rule out that changes in the sample period, the definition of consumption, the data source, the type of price deflator, and empirical considerations such as endogeneity bias and sampling noise in the construction of synthetic cohorts are the driving factors of the opposite conclusions reached by the two papers. All our evidence points towards the empirical specification, i.e., whether it is a consumption function (an equation for the level of consumption) or an Euler equation (an equation for consumption growth) as the only plausible explanation to the conflicting results. Our findings revive the debate of whether there is an effect of house prices on consumption, an issue of increasing importance in the current context of declining house prices in industrialized countries.
|Date of creation:||01 Dec 2011|
|Contact details of provider:|| Postal: Manor Rd. Building, Oxford, OX1 3UQ|
Web page: http://www.economics.ox.ac.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.:
- Hryshko, Dmytro & Luengo-Prado, Maria Jose & Sørensen, Bent E, 2010.
"House Prices and Risk Sharing,"
CEPR Discussion Papers
7894, C.E.P.R. Discussion Papers.
- Hryshko, Dmytro & Luengo-Prado, Maria & Sorensen, Bent, 2010. "House Prices and Risk Sharing," Working Papers 2010-16, University of Alberta, Department of Economics.
- Dmytro Hryshko & María José Luengo-Prado & Bent E. Sørensen, 2010. "House prices and risk sharing," Working Papers 2010-17, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
- Dmytro Hryshko & María José Luengo-Prado. & Bent E. Sørensen, 2009. "House prices and risk sharing," New England Public Policy Center Working Paper 09-3, Federal Reserve Bank of Boston.
- Maria Jose Luengo-Prado & Bent E. Sorensen & Dmytro Hryshko, 2009. "House Prices and Risk Sharing," 2009 Meeting Papers 234, Society for Economic Dynamics.
- Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
- Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Consumption, house prices and expectations," Bank of England working papers 271, Bank of England.
- Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
- Orazio Attanasio & Andrew Leicester & Matthew Wakefield, 2011. "Do House Prices Drive Consumption Growth? The Coincident Cycles Of House Prices And Consumption In The Uk," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 399-435, 06.
- Jiri Slacalek, 2006.
"What Drives Personal Consumption?: The Role of Housing and Financial Wealth,"
Discussion Papers of DIW Berlin
647, DIW Berlin, German Institute for Economic Research.
- Slacalek Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-37, October.
- Slacalek, Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," Working Paper Series 1117, European Central Bank.
- Martin Browning & Mette Gørtz & Søren Leth‐Petersen, 2013. "Housing Wealth and Consumption: A Micro Panel Study," Economic Journal, Royal Economic Society, vol. 0, pages 401-428, 05.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:589. 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: (Monica Birds)
If references are entirely missing, you can add them using this form.