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Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints

S. Boragan Aruoba, Ronel Elul and Sebnem Kalemli-Ozcan

No 30591, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We quantify the role of heterogeneity in households’ financial constraints in explaining the large decline in aggregate consumption between 2006 and 2009 using individual-level data. Financial constraints can explain 56% of the aggregate response of consumption to changes in house prices. Local general equilibrium feedback and decline in bank credit to consumers make up the remaining 44%. Our results show that a large part of the response that was attributed to wealth effects in the prior literature, can in fact be explained by heterogeneity in households’ financial constraints.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-ure
Note: EFG IFM
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