Booms and Busts: Consumption, House Prices and Expectations

31 Pages Posted: 2 Jan 2009

See all articles by Orazio Attanasio

Orazio Attanasio

University College London - Department of Economics; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Laura Blow

Institute for Fiscal Studies (IFS)

Robert Hamilton

Bank of England - Monetary Analysis

Andrew Leicester

Institute for Fiscal Studies (IFS)

Abstract

Over much of the past 25 years, house price and consumption growth have been closely synchronized. Three main hypotheses for this have been proposed: increases in house prices raise household wealth and so their consumption; house price growth reduces credit constraints by increasing the collateral available to homeowners; and house prices and consumption are together influenced by common factors. Using microeconomic data, we find that the relationship between house prices and consumption is stronger for younger than older households, contradicting the wealth channel. We suggest that common causality has been the most important factor linking house prices and consumption.

Suggested Citation

Attanasio, Orazio and Blow, Laura and Hamilton, Robert and Leicester, Andrew, Booms and Busts: Consumption, House Prices and Expectations. Economica, Vol. 76, Issue 301, pp. 20-50, February 2009. Available at SSRN: https://ssrn.com/abstract=1320004 or http://dx.doi.org/10.1111/j.1468-0335.2008.00708.x

Orazio Attanasio (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5880 (Phone)
+44 20 7916 2775 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Laura Blow

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Robert Hamilton

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Andrew Leicester

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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