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Household Balance Sheets and Consumption Responses to Income Shocks

Yunho Cho, James Morley () and Aarti Singh

No 2019-11, Working Papers from University of Sydney, School of Economics

Abstract: We examine how households with different homeownership status and balance sheet positions respond to income shocks using panel datasets for the United States and Australia. Mortgaged homeowners and households with high debt and low levels of liquid assets have larger responses to transitory income shocks, especially in the United States. Time-varying estimates suggest that mortgaged homeowners exhibited particularly high sensitivity to transitory income shocks when debt levels were high during the Great Recession in the United States and the recent housing boom in Australia. Meanwhile, in both countries, households with higher wealth have more consumption insurance against permanent income shocks.

Keywords: Household balance sheets; Transitory income shocks; Permanent in-come; Consumption insurance. (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-acc, nep-ias and nep-ure
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