Credit, Housing Collateral, and Consumption: Evidence from Japan, the U.K., and the U.S.

27 Pages Posted: 3 Aug 2012

See all articles by Janine Aron

Janine Aron

University of Oxford - Department of Economics

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

John Muellbauer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Keiko Murata

Government of Japan - Cabinet Office

Anthony Murphy

University of Oxford - Nuffield College of Medicine

Date Written: September 2012

Abstract

The consumption behavior of U.K., U.S., 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 U.K. and U.S., but not Japanese, households has undergone large shifts since 1980. The average consumption‐to‐income ratio rose in the U.K. and U.S. 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 similar in the U.S. and U.K. In Japan, land prices (which proxy house prices) continue to negatively impact consumer spending. There are negative real interest rate effects on consumption in the U.K. and U.S. and positive effects in Japan. Overall, this implies important differences in the transmission of monetary and credit shocks in Japan versus the U.S., U.K., and other credit‐liberalized economies.

Keywords: consumption, credit conditions, housing collateral, housing wealth

JEL Classification: E21, E32, E44, E51

Suggested Citation

Aron, Janine and Duca, John V. and Muellbauer, John and Murata, Keiko and Murphy, Anthony, Credit, Housing Collateral, and Consumption: Evidence from Japan, the U.K., and the U.S. (September 2012). Review of Income and Wealth, Vol. 58, Issue 3, pp. 397-423, 2012, Available at SSRN: https://ssrn.com/abstract=2122972 or http://dx.doi.org/10.1111/j.1475-4991.2011.00466.x

Janine Aron (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 271 084 (Phone)
+44 1865 271 094 (Fax)

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Oberlin College

Oberlin, OH 44074
United States

John Muellbauer

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 583 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Keiko Murata

Government of Japan - Cabinet Office

3-1-1 Kasumigaseki
Chiyoda-ku, Tokyo 1008670
Japan

Anthony Murphy

University of Oxford - Nuffield College of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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