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Household Balance Sheets and Consumption Responses to Income Shocks

Author

Listed:
  • Cho, Yunho
  • Morley, James
  • Singh, Aarti

Abstract

We examine how households with different homeownership status and balance sheet positions respond to income shocks using panel datasets for the United States and Australia. Mortgaged homeowners and households with high debt and low levels of liquid assets have larger responses to transitory income shocks, especially in the United States. Time-varying estimates suggest that mortgaged homeowners exhibited particularly high sensitivity to transitory income shocks when debt levels were high during the Great Recession in the United States and the recent housing boom in Australia. Meanwhile, in both countries, households with higher wealth have more consumption insurance against permanent income shocks.

Suggested Citation

  • Cho, Yunho & Morley, James & Singh, Aarti, 2019. "Household Balance Sheets and Consumption Responses to Income Shocks," Working Papers 2019-11, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2019-11
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    References listed on IDEAS

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    Cited by:

    1. Fiona Price & Benjamin Beckers & Gianni La Cava, 2019. "The Effect of Mortgage Debt on Consumer Spending: Evidence from Household-level Data," RBA Research Discussion Papers rdp2019-06, Reserve Bank of Australia.

    More about this item

    Keywords

    Household balance sheets; Transitory income shocks; Permanent in-come; Consumption insurance.;

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