Consumption Over Life Cycle: How Different is Housing?

Fang Yang

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: Micro data over the life cycle shows different patterns of consumption for housing and non-housing goods: the consumption profile of non-housing goods is hump-shaped while the consumption profile for housing first increases monotonically and then flattens out. These patterns hold true at each consumption quartile. This paper develops aquantitative, dynamic general equilibrium model of life-cycle behavior, which generates consumption profiles consistent with the observed data. Borrowing constraints are essential in explaining the accumulation of housing assets early in life, while transaction costs are crucial in generating the slow downsizing of the housing assets later in life.

Date: 2006
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Journal Article: Consumption over the Life Cycle: How Different is Housing? (2009)
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