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Housing, Household Portfolio, and Intertemporal Elasticity of Substitution: Evidence from the Consumer Expenditure Survey

  • Fuad Hasanov

    (Oakland University)

This paper investigates whether the inclusion of housing in a household portfolio is important to the household’s intertemporal decision making. Households hold portfolios of assets rather than a Treasury bill and/or a stock index and make their spending decisions based on expected total returns of an array of assets. The total returns account for capital gains, taxes, and inflation. In addition to financial assets such as stocks and bonds, we incorporate a real asset, residential housing, into a household portfolio. In particular, we estimate the intertemporal elasticity of substitution (IES), that is, how a change in asset or portfolio return affects household’s consumption growth, using a sample of households from the Consumer Expenditure Survey. Since changes in housing return can affect consumption of households over time, we investigate whether the inclusion of housing in the household portfolio provides different IES estimates. Moreover, utilizing a household-level data set, we estimate IES parameters for different groups of assetholders. Our results indicate that the housing return positively affects consumption growth, and housing is an important asset to account for in the household portfolio.

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File URL: http://econwpa.repec.org/eps/mac/papers/0510/0510011.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0510011.

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Length: 35 pages
Date of creation: 11 Oct 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0510011
Note: Type of Document - pdf; pages: 35
Contact details of provider: Web page: http://econwpa.repec.org

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  6. Fatih Guvenen, 2005. "Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution: A Macroeconomic Perspective," Macroeconomics 0507005, EconWPA.
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  8. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
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  10. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  11. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, vol. 63(251), pages 495-512, August.
  12. Berloffa, Gabriella, 1997. "Temporary and Permanent Changes in Consumption Growth," Economic Journal, Royal Economic Society, vol. 107(441), pages 345-58, March.
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  16. John Y. Campbell & N. Gregory Mankiw, 1987. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  17. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 631-49, July.
  18. Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
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