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Housing, Household Portfolio, and Intertemporal Elasticity of Substitution: Evidence from the Consumer Expenditure Survey

Fuad Hasanov

Macroeconomics from University Library of Munich, Germany

Abstract: This paper investigates whether the inclusion of housing in a household portfolio is important to the household’s intertemporal decision making. Households hold portfolios of assets rather than a Treasury bill and/or a stock index and make their spending decisions based on expected total returns of an array of assets. The total returns account for capital gains, taxes, and inflation. In addition to financial assets such as stocks and bonds, we incorporate a real asset, residential housing, into a household portfolio. In particular, we estimate the intertemporal elasticity of substitution (IES), that is, how a change in asset or portfolio return affects household’s consumption growth, using a sample of households from the Consumer Expenditure Survey. Since changes in housing return can affect consumption of households over time, we investigate whether the inclusion of housing in the household portfolio provides different IES estimates. Moreover, utilizing a household-level data set, we estimate IES parameters for different groups of assetholders. Our results indicate that the housing return positively affects consumption growth, and housing is an important asset to account for in the household portfolio.

Keywords: intertemporal elasticity of substitution; intertemporal choice; consumption; housing; household portfolio (search for similar items in EconPapers)
JEL-codes: D91 E21 C13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-10-11
New Economics Papers: this item is included in nep-mac, nep-mic and nep-ure
Note: Type of Document - pdf; pages: 35
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

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