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How Large Are Housing and Financial Wealth Effects? A New Approach

2011; Wiley; Volume: 43; Issue: 1 Linguagem: Inglês

10.1111/j.1538-4616.2010.00365.x

1538-4616

Christopher D. Carroll, Misuzu Otsuka, Jiří Slačálek,

Monetary Policy and Economic Impact

Journal of Money, Credit and BankingVolume 43, Issue 1 p. 55-79 How Large Are Housing and Financial Wealth Effects? A New Approach CHRISTOPHER D. CARROLL, CHRISTOPHER D. CARROLL Christopher D. Carroll is at Department of Economics, Johns Hopkins University (E-mail: [email protected]).Search for more papers by this authorMISUZU OTSUKA, MISUZU OTSUKA Misuzu Otsuka is at the Organisation for Economic Co-operation and Development (E-mail: [email protected]).Search for more papers by this authorJIRI SLACALEK, JIRI SLACALEK Jiri Slacalek is at the European Central Bank (E-mail: [email protected]).Search for more papers by this author CHRISTOPHER D. CARROLL, CHRISTOPHER D. CARROLL Christopher D. Carroll is at Department of Economics, Johns Hopkins University (E-mail: [email protected]).Search for more papers by this authorMISUZU OTSUKA, MISUZU OTSUKA Misuzu Otsuka is at the Organisation for Economic Co-operation and Development (E-mail: [email protected]).Search for more papers by this authorJIRI SLACALEK, JIRI SLACALEK Jiri Slacalek is at the European Central Bank (E-mail: [email protected]).Search for more papers by this author First published: 19 January 2011 https://doi.org/10.1111/j.1538-4616.2010.00365.xCitations: 221 This paper is based on material originally prepared for an Academic Consultants' meeting of the Board of Governors of the Federal Reserve System, January 30, 2004; for the version of the paper originally presented at the Fed, see Carroll (2004). We thank the discussant of that paper, Robert Shiller, as well as Pok-sang Lam (the editor), two anonymous referees, Ben Bernanke, Alan Greenspan, Robert Hall, Nicholas Souleles, David Wyss, Stephen Zeldes, the staff of the Fed, and other attendees at the meeting for very valuable feedback. The data and econometric programs that generated all of the results in this paper are available in the archive (http://econ.jhu.edu/people/ccarroll/papers/cosWealthEffects/). We are also grateful to Emmanuel de Veirman and Sherif Khalifa for excellent research assistance. The views presented in this paper are those of the authors, and should not be attributed to the Organisation for Economic Co-operation and Development or the European Central Bank. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Abstract This paper presents a simple new method for measuring "wealth effects" on aggregate consumption. The method exploits the stickiness of consumption growth (sometimes interpreted as reflecting consumption "habits") to distinguish between immediate and eventual wealth effects. In U.S. data, we estimate that the immediate (next quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final eventual effect around 9 cents, substantially larger than the effect of shocks to financial wealth. We argue that our method is preferable to cointegration-based approaches, because neither theory nor evidence supports faith in the existence of a stable cointegrating vector. LITERATURE CITED Aron, Janine, John Duca, John Muellbauer, Keiko Murata, and Anthony Murphy. (2008) " Credit, Housing, Collateral and Consumption: Evidence from the UK, Japan and the US." Mimeo, University of Oxford . Aron, Janine, and John Muellbauer. (2006) " Housing Wealth, Credit Conditions and Consumption." Working Paper 9, Centre for the Study of African Economies, Oxford University . Attanasio, Orazio, Laura Blow, Robert Hamilton, and Andrew Leicester. (2008) " Consumption, House Prices, and Expectations." Bank of England Working Paper No. 271. 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Citing Literature Volume43, Issue1February 2011Pages 55-79 ReferencesRelatedInformation