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http://hdl.handle.net/10419/25501
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| Title: | | How large is the housing wealth effect? A new approach  |
| Authors: | | Carroll, Christopher D. Otsuka, Misuzu Slacalek, Jirka |
| Issue Date: | | 2006 |
| Series/Report no.: | | CFS Working Paper 2006/35 |
| Abstract: | | This paper presents a simple new method for estimating the size of wealth effects on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as habits in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegrationbased estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector. |
| Subjects: | | Housing Wealth Wealth Effect Consumption Dynamics Asset Price Bubbles |
| JEL: | | E21 E32 C22 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
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