Did Marginal Propensities to Consume Change with the Housing Boom and Bust?

Yunho Cho, James Morley and Aarti Singh

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We extend a widely-used semi-structural model to identify and estimate dynamic consumption elasticities with respect to transitory income shocks. Applying our model to household survey data, we find a structural break in marginal propensities to consume following the end of the housing market boom, with the average across households increasing significantly. Our results suggest important heterogeneity by different household balance sheet characteristics and that the increase in the average was driven by higher short-run consumption elasticities for homeowners with low liquid wealth. The change in consumption behavior appears to be related to tighter borrowing constraints more than a shift in wealth distributions.

Keywords: marginal propensity to consume; Great Recession; consumption insurance; liquid wealth; house prices (search for similar items in EconPapers)
JEL-codes: C13 C33 D12 D14 E21 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2023-07
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Journal Article: Did marginal propensities to consume change with the housing boom and bust? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-32

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