Wealth Effects Revisited 1978-2009

41 Pages Posted: 28 Feb 2011

See all articles by Karl E. Case

Karl E. Case

Deceased

John M. Quigley

University of California, Berkeley, College of Letters & Science, Department of Economics (Deceased); University of California, Berkeley, Haas School of Business, Real Estate Group (Deceased)

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 22, 2011

Abstract

We re-examine the link between changes in housing wealth, financial wealth, and consumer spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period, 1982 through 1999, to the thirty-one year period, 1978 through 2009. Using techniques reported previously, we impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating per capita consumption to per capita income and wealth. We find a statistically significant and rather large effect of housing wealth upon household consumption. This effect is consistently larger than the effect of stock market wealth upon consumption. This reinforces the conclusions reported in our previous analysis.

In contrast to our previous analysis, however, we do find - based on data which include the recent volatility in asset markets - that the effects of declines in housing wealth in reducing consumption are at least as large as the effects of increases in housing wealth in increasing the course of household consumption.

Keywords: Consumption, Nonfinancial wealth, Housing market, Real estate

JEL Classification: E2, G1

Suggested Citation

Case, Karl E. and Quigley, John M. and Shiller, Robert J., Wealth Effects Revisited 1978-2009 (February 22, 2011). Cowles Foundation Discussion Paper No. 1784. Available at SSRN: https://ssrn.com/abstract=1766604 or http://dx.doi.org/10.2139/ssrn.1766604

Karl E. Case

Deceased

John M. Quigley

University of California, Berkeley, College of Letters & Science, Department of Economics (Deceased) ( email )

Berkeley, CA 94720-3880
United States
510-643-7411 (Phone)
510-643-7357 (Fax)

University of California, Berkeley, Haas School of Business, Real Estate Group (Deceased) ( email )

Berkeley, CA 94720-1900
United States

Robert J. Shiller (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://www.econ.yale.edu/~shiller/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
203-432-3708 (Phone)

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

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