Housing Wealth and Consumption

20 Pages Posted: 21 Aug 2011

See all articles by Matteo Iacoviello

Matteo Iacoviello

Board of Governors of the Federal Reserve System

Date Written: August 16, 2011

Abstract

Housing wealth is about one half of household net worth, and consumption is a considerable fraction (about two thirds) of Gross Domestic Product in the United States. Empirically, movements in housing wealth are associated with movements in consumption in the same direction. This observation has led many economists, commentators and policy makers to study how housing wealth and consumption are linked together. A sizable portion of the comovement between housing wealth and consumption reflects common factors driving both variables, rather than the "wealth effect" of the former on the latter; however, a growing body of evidence suggests that the comovement is larger in developed financial markets and in the presence of liquidity constraints.

Keywords: borrowing constraints, consumption, consumption function, household budget

JEL Classification: C2, E2, G1, R2

Suggested Citation

Iacoviello, Matteo, Housing Wealth and Consumption (August 16, 2011). FRB International Finance Discussion Paper No. 1027, Available at SSRN: https://ssrn.com/abstract=1912953 or http://dx.doi.org/10.2139/ssrn.1912953

Matteo Iacoviello (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
981
Abstract Views
4,781
Rank
43,290
PlumX Metrics