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

Posted: 28 Mar 2015

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: March 26, 2015

Abstract

This paper applies a time-varying parameter vector autoregressive approach to estimate the relative effects of housing and stock returns on the growth rate of US consumption over time. We use annual data from 1890 to 2012 and find that at the one- and two-year horizons and over time, generally the housing return positively affects consumption growth while the stock return negatively affects it. For the three to six-year horizons, the two return shocks generally exert a negative, but small, effect on consumption growth. These opposite responses to changes in housing and stock returns suggest different mechanisms through which wealth affects consumption. Further, the housing return effect generally increases after 1980. The sub-period from 1980 to 2012 includes the 1997/2002 asset price boom/bust where house prices continued to rise moderately as stock prices fell. These findings suggest that the magnitude of the relative return effects differ with both time and horizons and also depends on whether prices increase or decrease.

Keywords: Asset returns; Consumption; Time-Varying parameter vector autoregressive

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 Returns on U.S. Consumption (March 26, 2015). Journal of Real Estate Finance and Economics, Vol. 50, No. 3, 2015, Available at SSRN: https://ssrn.com/abstract=2585602

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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