Housing Collateral and Consumption Insurance Across US Regions

Stijn Van Nieuwerburgh and Hanno Lustig

No 548, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of consumption growth. In the model, a decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, reduces the amount of income risk shared and increases the conditional market price of risk. Regional risk-sharing patterns for US metropolitan areas lend direct support to the housing collateral channel. In times with a high housing collateral ratio, consumption growth is more strongly correlated across regions. Time-variation in the degree of risk-sharing induced by house price changes sheds new light on the consumption correlation puzzle

Keywords: risk-sharing; housing (search for similar items in EconPapers)
JEL-codes: E21 E30 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (15)

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