Wealth Effects Revisited: 1975-2012

Karl Case, John Quigley and Robert Shiller

No 18667, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We re-examine the links between changes in housing wealth, financial wealth, and consumer spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period, 1982 through 1999, to the thirty-seven year period, 1975 through 2012Q2. Using techniques reported previously, we impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating per capita consumption to per capita income and wealth. We find a statistically significant and rather large effect of housing wealth upon household consumption. This effect is consistently larger than the effect of stock market wealth upon consumption. In our earlier version of this paper we found that households increase their spending when house prices rise, but we found no significant decrease in consumption when house prices fall. The results presented here with the extended data now show that declines in house prices stimulate large and significant decreases in household spending. The elasticities implied by this work are large. An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%. A decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%.

JEL-codes: E02 G1 R31 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-mac and nep-ure
Note: AP EFG
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Citations: View citations in EconPapers (77)

Published as Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2013. "Wealth Effects Revisited 1975-2012," Critical Finance Review, now publishers, vol. 2(1), pages 101-128, July.

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Journal Article: Wealth Effects Revisited 1975-2012 (2013)
Working Paper: Wealth Effects Revisited 1975-2012 (2012)
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