Consumption Responses to Permanent and Transitory Shocks to House Appreciation: Working Paper 2009-05

Juan Contreras and Joseph Nichols

No 41876, Working Papers from Congressional Budget Office

Abstract: We estimate the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. Besides borrowing constraints, we consider two different models under which those shocks may affect consumption. In the first one, we treat housing as a risky asset. In the second one, housing has a role as a consumption and as an investment good. In both, changes in the rate of house price appreciation may affect nonhousing consumption. Shocks to appreciation rates may happen when increases in future house prices are expected to differ from the current

Date: 2009-12-18
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