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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://128.118.178.162/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://128.118.178.162

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  1. Orazio Attanasio & James Banks & Sarah Tanner, 1998. "Asset holding and consumption volatility," IFS Working Papers W98/08, Institute for Fiscal Studies.
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  9. 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.
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  12. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
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  14. Hahm, Joon-Ho, 1998. "Consumption adjustment to real interest rates: Intertemporal substitution revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 293-320, February.
  15. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October.
  16. Blundell, Richard & Browning, Martin & Meghir, Costas, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 57-80, January.
  17. Ogaki, M., 1990. "Engel'S Law And Cointegration," RCER Working Papers 228, University of Rochester - Center for Economic Research (RCER).
  18. Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
  19. 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.
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  23. Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
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