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Impending U.S. spending bust?: the role of housing wealth as borrowing collateral

Daniel Cooper

No 09-9, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: Using data from the Panel Study of Income Dynamics, this paper considers the mechanism by which changing house values impact U.S. household spending. The results suggest that house values affect consumption by serving as collateral for households to borrow against to smooth their spending. The results show that the consumption of households who need to borrow against their home equity increases by roughly 11 cents per $1.00 increase in their housing wealth. Changing house values, however, have little effect on the expenditures of households who do not need to borrow to finance their consumption. Based on these results, the paper further finds that declining housing wealth has a relatively small implied negative impact on aggregate consumption expenditures.

Keywords: Home; equity; loans (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ure
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