Consumption, House Prices and Collateral Constraints: a Structural Econometric Analysis

Matteo Iacoviello ()

No 589, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and consumption possibilities for a fraction of the households. I then derive and estimate an aggregate consumption Euler equation, and estimate its structural parameters. The results provide robust support for housing prices as a driving force of consumption fluctuations.

Keywords: consumption; credit; collateral constraints; house prices (search for similar items in EconPapers)
JEL-codes: C2 E2 G1 R2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-geo, nep-mac and nep-ure
Date: 2004-01-23, Revised 2004-09-13
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Related works:
Working Paper: Consumption, House Prices and Collateral Constraints: A Structural Econometric Analysis (2004)
Working Paper: Consumption, House Prices and Collateral Constraints: a Structural Econometric Analysis (2004)
Journal Article: Consumption, house prices, and collateral constraints: a structural econometric analysis (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:589

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