Booms and busts: consumption, house prices and expectations
Orazio Attanasio (),
Laura Blow (),
Robert Hamilton and
Andrew Leicester ()
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Laura Blow: Institute for Fiscal Studies
No W05/24, IFS Working Papers from Institute for Fiscal Studies
Over much of the past 25 years, the cycles of house price and consumption growth have been closely synchronised. Three main hypotheses for this co-movement have been proposed in the literature. First, that an increase in house prices raises households' wealth, particularly for those in a position to trade down the housing ladder, which increases their desired level of expenditure. Second, that house price growth increases the collateral available to homeowners, reducing credit constraints and thereby facilitating higher consumption. And third, that house prices and consumption have tended to be influenced by common factors. This paper finds that the relationship between house prices and consumption is stronger for younger than older households, which appears to contradict the wealth channel. These findings therefore suggest that common causality has been the most important factor behind the link between house price and consumption.
Keywords: House prices; consumption booms; wealth effects; collateral effects; common causality (search for similar items in EconPapers)
JEL-codes: C13 D10 D91 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-fmk, nep-mac and nep-ure
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Journal Article: Booms and Busts: Consumption, House Prices and Expectations (2009)
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