Credit, Housing Collateral and Consumption: Evidence from the UK, Japan and the US
University of Oxford - Department of Economics
John V. Duca
Federal Reserve Bank of Dallas
University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)
Government of Japan - Cabinet Office
University of Oxford
CEPR Discussion Paper No. DP7876
The consumption behaviour of UK, US and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for UK and US but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the UK and US as mortgage down-payment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is roughly similar in the US and UK, while land prices in Japan still have a negative effect on consumer spending. Together with evidence for negative real interest rate effects in the UK and US and positive ones in Japan, this suggests important differences in the transmission of monetary and credit shocks between Japan and the US, UK and other credit-liberalized economies.
Number of Pages in PDF File: 44
Keywords: consumption, credit conditions, housing collateral and housing wealth
JEL Classification: E21, E32, E44, E51working papers series
Date posted: July 19, 2010
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