The General Equilibrium Effects of Inflation on Housing Consumption and Investment

14 Pages Posted: 7 Aug 2007 Last revised: 9 May 2015

See all articles by James A. Berkovec

James A. Berkovec

Federal Home Loan Mortgage Corporation (FHLMC)

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 1989

Abstract

In a mean-variance portfolio choice model, each of 3,578 households from the 1983 Survey of Consumer Finances has calculated preferences over housing, other consumption, and risk. Each household is constrained such that any owner-occupied housing in portfolio must match housing services consumed. Corporate taxes are modeled in some detail, and regression coefficients are used to estimate the adjusted gross income, itemizable deductions, and statutory marginal tax rate of each household. General equilibrium simulation results indicate that inflation does not necessarily increase total owner housing. Top-bracket households increase their owner housing, while others switch into bonds. The greater number of households in low-brackets implies that the homeownership rate can fall even if the amount of owner housing rises.

Suggested Citation

Berkovec, James A. and Fullerton, Don, The General Equilibrium Effects of Inflation on Housing Consumption and Investment (1989). NBER Working Paper No. w2826. Available at SSRN: https://ssrn.com/abstract=447236

James A. Berkovec (Contact Author)

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Drive
Mclean, VA 22102
United States
703-903-4356 (Phone)

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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