IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

How do house prices affect consumption? Evidence from micro data

  • John Y. Campbell
  • Joao F. Cocco

Housing wealth is a major component of households' wealth. Since house prices fluctuate considerably over time, an important question is how house price fluctuations affect households' consumption decisions. This may happen through at least two channels: (i) a wealth channel, or (ii) by relaxing or making borrowing constraints more severe. This paper investigates the response of household consumption to house prices using micro level data. We estimate a positive wealth effect on consumption of house price shocks for older households who are homewoners, and a negative wealth effect for young households who are renters. These are the households that are more likely to be long and short housing, respectively. We also find that consumption responds to predictable changes in house prices, an effect which is consistent with an increase in house prices relaxing borrowing constraints.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 304.

as
in new window

Length:
Date of creation: 2004
Handle: RePEc:red:sed004:304
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
Email:


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.:

as in new window
  1. Carol C. Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
  2. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  3. François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research.
  4. Orazio P. Attanasio & Martin Browning, 1993. "Consumption over the Life Cycle and over the Business Cycle," NBER Working Papers 4453, National Bureau of Economic Research, Inc.
  5. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  6. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
  7. John Y. Campbell & Joao F. Cocco, 2002. "Household Risk Management and Optimal Mortgage Choice," Harvard Institute of Economic Research Working Papers 1946, Harvard - Institute of Economic Research.
  8. Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000. "Consumption Over the Life-Cycle," CEPR Discussion Papers 2345, C.E.P.R. Discussion Papers.
  9. Stijn Van Nieuwerburgh & Hanno Lustig, 2004. "Housing Collateral and Consumption Insurance Across US Regions," 2004 Meeting Papers 548, Society for Economic Dynamics.
  10. Lawrence J. Christiano & Martin Eichenbaum & David A. Marshall, 1990. "The permanent income hypothesis revisited," Staff Report 129, Federal Reserve Bank of Minneapolis.
  11. John Y. Campbell & Joao F. Cocco, 2004. "How Do House Prices Affect Consumption? Evidence From Micro F. Data," Harvard Institute of Economic Research Working Papers 2045, Harvard - Institute of Economic Research.
  12. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  13. Monika Piazzesi & Martin Schneider & Selale Tuzel, 2006. "Housing, Consumption, and Asset Pricing," NBER Working Papers 12036, National Bureau of Economic Research, Inc.
  14. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
  15. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 305-324, May.
  16. Goetzmann, William Nelson, 1993. "The Single Family Home in the Investment Portfolio," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 201-222, May.
  17. Dirk Krueger & Jesus Fernandez-Villaverde, 2004. "Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data," 2004 Meeting Papers 173, Society for Economic Dynamics.
  18. Charles Ka Yui Leung, 2004. "Macroeconomics and Housing: A Review of the Literature," Discussion Papers 00004, Chinese University of Hong Kong, Department of Economics.
  19. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-27, November.
  20. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 197-239.
  21. Shiller, Robert J., 1998. "Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks," OUP Catalogue, Oxford University Press, number 9780198294184, December.
  22. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  23. 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 125-137, March.
  24. Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
  25. Sheiner Louise, 1995. "Housing Prices and the Savings of Renters," Journal of Urban Economics, Elsevier, vol. 38(1), pages 94-125, July.
  26. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
  27. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-279, July.
  28. 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.
  29. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-occupied housing as a hedge against rent risk," Working Papers 05-10, Federal Reserve Bank of Philadelphia.
  30. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
  31. Joseph Tracy & Henry Schneider, 2001. "Stocks in the household portfolio: a look back at the 1990s," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 7(Apr).
  32. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  33. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
  34. Hanno Lustig & Stijn Van Nieuwerburgh, 2004. "How Much Does Household Collateral Constrain Regional Risk Sharing?," NBER Working Papers 10505, National Bureau of Economic Research, Inc.
  35. Motohiro Yogo, 2006. "A Consumption-Based Explanation of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 61(2), pages 539-580, 04.
  36. Christopher D. Carroll & Andrew A. Samwick, 1995. "The Nature of Precautionary Wealth," NBER Working Papers 5193, National Bureau of Economic Research, Inc.
  37. Jonathan Skinner, 1991. "Housing and Saving in the United States," NBER Working Papers 3874, National Bureau of Economic Research, Inc.
  38. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  39. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
  40. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, December.
  41. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
  42. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
  43. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  44. François Ortalo-Magné & Sven Randy, 2001. "Housing market dynamics: on the contribution of income shocks and credit constraints," LSE Research Online Documents on Economics 25049, London School of Economics and Political Science, LSE Library.
  45. Chris Carroll & Lawrence H. Summers, 1989. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Working Papers 3090, National Bureau of Economic Research, Inc.
  46. repec:fth:harver:1466 is not listed on IDEAS
  47. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 275-298.
  48. James Banks & Tanner, S, 2000. "Household portfolios in the UK," IFS Working Papers W00/14, Institute for Fiscal Studies.
  49. Heaton, John, 1993. "The Interaction between Time-Nonseparable Preferences and Time Aggregation," Econometrica, Econometric Society, vol. 61(2), pages 353-385, March.
  50. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
  51. Kul B. Bhatia, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 437-444.
  52. John D. Benjamin & Peter Chinloy & G. Donald Jud, 2004. "Real Estate Versus Financial Wealth in Consumption," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 341-354, November.
  53. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

When requesting a correction, please mention this item's handle: RePEc:red:sed004:304. 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: (Christian Zimmermann)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.