How Large Is the Housing Wealth Effect? A New Approach

Christopher Carroll, Misuzu Otsuka and Jiri Slacalek

Economics Working Paper Archive from The Johns Hopkins University,Department of Economics

Abstract: This paper presents a simple new method for estimating the size of �wealth effects?on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as �habits?in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final longrun effect around 9 cents. Consistent with most recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach has sounder theoretical foundations than the currently popular cointegration-based estimation methods, because neither theory nor evidence provides any reason for faith in the existence of a stable cointegrating vector.

Date: 2006-10
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (125)

Downloads: (external link)
http://www.econ2.jhu.edu/REPEC/papers/wp535carroll.pdf (application/pdf)

Related works:
Working Paper: How Large Is the Housing Wealth Effect? A New Approach (2006)
Working Paper: How large is the housing wealth effect? A new approach (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jhu:papers:535

Access Statistics for this paper

More papers in Economics Working Paper Archive from The Johns Hopkins University,Department of Economics 3400 North Charles Street Baltimore, MD 21218. Contact information at EDIRC.
Bibliographic data for series maintained by Humphrey Muturi ().