The Housing Wealth Effect: Quasi-Experimental Evidence
76 Pages Posted: 14 Feb 2019 Last revised: 2 Mar 2019
Date Written: February 5, 2019
We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately $-$15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued. This source of price variation is ideal for identifying housing wealth effects since it is unrelated to macroeconomic conditions. We estimate a micro elasticity of 0.45 among purchasers of new cars. The implied aggregate MPC on cars is however only 0.13 cents per dollar. The response is entirely concentrated to homeowners with a loan-to-value ratio between 0.6 and 0.8.
Keywords: house prices, housing wealth, consumption, house price elasticity, marginal propensity to consume, collateral effect
JEL Classification: D12, E21, E32, E44, E60
Suggested Citation: Suggested Citation