House Prices and Retail Prices

Joseph Vavra and Johannes Stroebel

No 72, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: Do increases in wealth driven by house price growth lead to changes in customer shopping and firms' price-setting behavior? We link disaggregated microdata from various sources to construct zip-code level measures of retail prices, house prices, and customer shopping. We find that there is a strong positive relationship between retail prices and house prices. To argue that this relationship is evidence of wealth-effects, we show that increases in house prices increase retail prices only in regions with high owner occupancy rates. House price increases are negative wealth effects for renters, and we find that in regions with low owner occupancy rates, house price growth lowers retail prices. In addition, consumer shopping behavior also changes with house price growth in a way that depends on owner occupancy rates.

Date: 2014
New Economics Papers: this item is included in nep-ure
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