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The (mythical?) housing wealth effect

Author: Charles W Calomiris; Stanley D Longhofer; William Miles; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, ©2009.
Series: Working paper series (National Bureau of Economic Research), no. 15075.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Summary:
Models used to guide policy, as well as some empirical studies, suggest that the effect of housing wealth on consumption is large and greater than the wealth effect on consumption from stock holdings. Recent theoretical work, in contrast, argues that changes in housing wealth are offset by changes in housing consumption, meaning that unexpected shocks in housing wealth should have little effect on non-housing  Read more...
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Details

Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Charles W Calomiris; Stanley D Longhofer; William Miles; National Bureau of Economic Research.
OCLC Number: 401710926
Notes: "June 2009."
Description: 1 online resource (29 pages).
Series Title: Working paper series (National Bureau of Economic Research), no. 15075.
Responsibility: Charles Calomiris, Stanley D. Longhofer, William Miles.

Abstract:

Models used to guide policy, as well as some empirical studies, suggest that the effect of housing wealth on consumption is large and greater than the wealth effect on consumption from stock holdings. Recent theoretical work, in contrast, argues that changes in housing wealth are offset by changes in housing consumption, meaning that unexpected shocks in housing wealth should have little effect on non-housing consumption. We reexamine the impact of housing wealth on non-housing consumption, employing the Case-Quigley-Shiller data on U.S. housing wealth that have been used in prior studies to estimate a large housing wealth effect. Existing empirical work fails to control for the fact that changes in housing wealth may be correlated with changes in expected permanent income, biasing the resulting estimates. Once we control for the endogeneity bias resulting from the correlation between housing wealth and permanent income, we find that housing wealth has a small and insignificant effect on consumption. Additional analysis of time-series results provides further support for that view.

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