Time-Varying Effects of Housing and Stock Prices on U.S. Consumption

22 Pages Posted: 5 Jun 2013 Last revised: 31 Aug 2016

See all articles by Beatrice Simo-Kengne

Beatrice Simo-Kengne

University of Pretoria - Department of Economics

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Rangan Gupta

University of Pretoria - Department of Economics

Goodness Aye

University of Pretoria - Department of Economics

Date Written: June 4, 2013

Abstract

This paper applies a time-varying parameter vector autoregressive (TVP-VAR) approach to estimate the relative effects of housing and stock prices on US consumption over time. We use annual data from 1890 to 2012 and find that over different horizons and over time, generally the housing price positively affects consumption while the stock price negatively affects consumption. These opposite responses to changes in housing and stock prices suggest different mechanisms through which wealth affects consumption. Further, the housing price effect proves larger in absolute value than the stock price effect after 1980. Between 1980 and 2007, housing wealth generally exerted a larger effect on consumption. This sub-period includes the 1997/2002 asset price boom/bust where house prices continued to rise moderately as stock prices fell. Finally, the co-occurrence of the decline in both housing and stock prices during the 2007-2009 episode produced bigger effects of the housing price for the first five years of the impulse responses while the higher magnitude of the stock price effect appears in the 6-year horizon. These findings suggest that the magnitude of the relative price effects differs with both time and horizons and also depends on whether prices increase or decrease.

Keywords: Asset Prices, Consumption, TVP-VAR

JEL Classification: C32, E21, G10

Suggested Citation

Simo-Kengne, Beatrice and Miller, Stephen M. and Gupta, Rangan and Aye, Goodness, Time-Varying Effects of Housing and Stock Prices on U.S. Consumption (June 4, 2013). Journal of Real Estate Finance and Economics, April 2015, Available at SSRN: https://ssrn.com/abstract=2274315 or http://dx.doi.org/10.2139/ssrn.2274315

Beatrice Simo-Kengne

University of Pretoria - Department of Economics ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Goodness Aye

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

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