粘雀子嘴Journal of Monetary Economics 54(2007)591–621
How do hou prices affect consumption?Evidence
from micro data $
John Y.Campbell a,Ã,Joa o F.Cocco b
a Department of Economics,Harvard University,Littauer Center 213,Cambridge,MA 02138and NBER,USA
b London Business School,Regent’s Park,London NW14SA,and CEPR,UK
Received 18October 2004;received in revid form 20October 2005;accepted 28October 2005
Available online 3November 2006
Abstract
Housing is a major component of wealth.Since hou prices fluctuate considerably over time,it is important to understand how the fluctuations affect houholds’consumption decisions.Rising hou prices may stimulate consumption by increasing houholds’perceived wealth,or by relaxing borrowing constraints.This paper investigates the respon of houhold consumption to hou prices using UK micro data.We estimate the largest effect of hou prices on consumption for older homeowners,and the smallest effect,insignificantly different from zero,for younger renters.This finding is consistent with heterogeneity in the wealth effect across the groups.In addition,we find that regional hou prices affect regional consumption growth.Predictable changes in hou prices are correlated with predictable changes in consumption,particularly for houholds that are more likely to be borrowing constrained,but this effect is driven by national rather than regional hou prices and is important for renters as well as homeowners,suggesting that UK hou prices are correlated with aggregate financial market conditions.
r 2006Elvier B.V.All rights rerved.
Keywords:Wealth effect;Borrowing constraints;Pudo-panel
养羊基地/locate/jme
0304-3932/$-e front matter r 2006Elvier B.V.All rights rerved.
doi:10.1016/j.jmoneco.2005.10.016$
We would like to thank David Laibson and minar participants at Harvard,the London School of Economics,and the 2004SED meetings for comments.We are particularly grateful to an anonymous referee for detailed and constructive comments.ÃCorresponding author.Tel.:+16174966448.
E-mail address:john_campbell@harvard.edu (J.Y.Campbell),jcocco@london.edu (J.F.Cocco).
1.Introduction
Housing is the dominant component of wealth for the typical houhold in the United States or the United Kingdom.Bertaut and Starr-McCluer (2002)show that residential property accounted for about one quarter of aggregate houhold wealth in the US in the late 1990s,while Banks and Tanner (2002)report that real estate accounted for 35%of aggregate houhold wealth in the UK in the mid 1990s.Housing wealth is particularly important for middle-class houholds:Tracy and Schneider (2001),for example,show that it accounts for almost two-thirds of the wealth of the median US houhold.The share of housing is likely to be even higher today after veral years of strong hou
price growth.Hous are risky asts with volatile prices.Much of this volatility is local,but there is a common component to hou prices that is visible in regional and even national hou price indexes.National hou price volatility is particularly striking in the UK,a geographically compact country with a nationally integrated housing market.Fig.1shows the evolution of hou prices in the United Kingdom between 1988and 2000,a period in which annual changes in nominal hou prices ranged from À10%to 30%.
The magnitude and volatility of housing wealth have led many to suggest that hou price changes have significant effects on aggregate consumption.Muellbauer and Murphy (1990),for example,argued that hou price increas and financial liberalization stimulated a consumption boom in the UK in the late 1980s.More recently Ca et al.(2003)find a strong correlation between aggregate hou prices and aggregate
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Fig.1.Interest rate,inflation,and hou prices in the United Kingdom.This figure shows the nominal interest rate,inflation rate and hou price return for the United Kingdom.The inflation rate measure is the change in the retail price index.The hou price data are from Nationwide.The ries are quart
erly,but are in annual terms.
J.Y.Campbell,J.F.Cocco /Journal of Monetary Economics 54(2007)591–621592
J.Y.Campbell,J.F.Cocco/Journal of Monetary Economics54(2007)591–621593 consumption in a panel of developed countries from the late1970s through the late1990s. (See also Benjamin et al.,2004and Bhatia,1987.)
It is tempting to attribute the correlation between hou prices and consumption to a direct housing wealth effect:increasing hou prices increa housing wealth,which in turn increas consumption.There are,however,veral reasons not to make this attribution without further analysis.First,the theoretical rationale for a large housing wealth effect is unclear.If we definefinancial wealth as the sum of liquidfinancial asts and the value of real estate minus debt outstanding,it is clear that an increa in hou prices leads to an increa in homeowners’financial wealth.But this does not necessarily mean that their real wealth is also higher.Housing is a consumption good, and for a homeowner who expects to live in his current hou for a very long time,a higher hou price is simply compensation for a higher implicit rental cost of living in the hou.In other words,as Sinai and Souleles(2005)point out,homeowners with a long expected tenure are perfectly hedged againstfl
uctuations in rents and the correspondingfluctuations in hou prices.Thefluctuations,however large they may be,have no real wealth effect,and abnt any substitution effects,should not affect consumption choices.
Second,there are alternative explanations for the correlation between hou prices and consumption.Housing is an ast that can be ud as collateral in a loan.An increa in hou prices may lead to an increa in consumption not becau of a wealth effect,but becau it allows borrowing constrained homeowners to smooth consumption over the life cycle(Ortalo-Magne and Rady,2006;Lustig and Van Nieuwerburgh,2006).
It is also possible that the correlation between hou prices and consumption may be driven by an unobrved macroeconomic factor.For example hou prices may respond to future income prospects,to which current consumption also responds provided that houholds are not borrowing constrained(King,1990).Alternatively,financial liberal-ization may drive up hou prices and stimulate consumption by relaxing borrowing constraints on all consumers(Attanasio and Weber,1994;Muellbauer and Murphy,1997). The objective of this paper is to u houhold level data to distinguish among the alternative explanations for the hou price–consumption correlation.Micro data can be helpful in veral ways.First,micro data allow us to identify tho hous
eholds for which the direct wealth effect of hou prices is particularly large or small.Most young houholds plan to increa hou size later in life,and for this reason can be thought of as ‘‘short’’in housing.On the other hand,many old houholds plan to move to a smaller hou later in life,so they are‘‘long’’in housing.Without instruments that allow houholds to insure the short and long positions,there is a redistributive wealth effect of unexpected shocks to hou prices.We expect to e older homeowning houholds increasing their consumption when hou prices ri,while younger renting houholds should cut their consumption.
Second,micro data allow us to distinguish the effects of local and national movements in hou prices.National income prospects andfinancial liberalization operate through national hou prices,while regional income prospects,direct wealth effects,and collateral effects operate through local hou prices.
In our analysis of houhold level data,we also distinguish between predictable and unpredictable movements in hou prices and consumption.This approach,which we borrow from the literature testing the permanent income hypothesis(Hall,1978;Hall and Mishkin,1982;Flavin,1981;Campbell and Mankiw,1989,1991;Zeldes,1989a;西部支教报名条件
Runkle,1991),enables us to distinguish wealth effects from other effects such as collateral effects,precautionary savings,or myopic behavior.
We u houhold level data from the UK family expenditure survey (FES)to estimate the respon of consumption to hou prices.The FES is a continuous survey of houholds,in which each houhold is interviewed only once.Therefore,we employ the methodology introduced in Browning et al.(1985)and Deaton (1985)to construct panel data from a time ries of cross ctions,or a pudo-panel.The u of houhold level data is important becau we can estimate the respon of consumption to hou prices in the region where the houhold lives,and control for changes in houhold income,the degree of houhold leverage,and houhold demographics.We make u of the fact that houholds are heterogeneous along veral dimensions,including age,homeownership status,and region of residence,to at least partially distinguish between aggregate,regional,and houhold specific effects of hou prices on houhold consumption.
性格使然是啥意思The u of pudo-panel data limits our analysis in certain ways.With such data we are not able to precily identify tho houholds for whom the wealth effect of hou price changes is largest,or for whom borrowing constraints are relaxed when hou prices increa.We can only uncover how likely a person in a given cohort is to experience a wealth effect due to hou price changes,or how l
ikely is it that a person in a given cohort is borrowing constrained.In addition,pudo-panel data can include substantial measurement error.
微信面对面红包With the limitations in mind,we find considerable heterogeneity in the respon of houhold consumption to hou prices.More precily,we estimate a large positive effect of hou prices on consumption for the cohort of old houholds who are homeowners,and an effect that is clo to zero for the cohort of young houholds who are renters.The are the cohorts of houholds who are most likely to be long and short in housing,respectively.The estimated hou price elasticity of consumption is as large as 1.7for the old homeowners group,controlling for interest rates,houhold income,and other demographic variables.This age heterogeneity is important since it suggests that as the population ages and becomes more concentrated in the old homeowners group,aggregate consumption may become more responsive to hou prices.Previous estimates of the elasticity of consumption to hou prices using aggregate data miss this source of time variation since they do not take into account the slowly changing age structure of the population.However,one should bear in mind that changing demographics may have general equilibrium effects on the stochastic process for production factors and hou prices,and the decision rules of houholds.
Controlling for economy-wide hou prices and for regional income,we find that regional hou price
s have important effects on houhold consumption.In fact,the estimated elasticity of consumption with respect to regional hou prices is larger than the estimated elasticity with respect to UK hou prices when we include both in the regression together with regional income.This shows that it is important to consider regional heterogeneity when estimating the effects of hou prices on consumption.
Finally,we find that consumption responds to predictable changes in hou prices,an effect which is consistent with an increa in hou prices relaxing borrowing constraints,but that may also be explained by a precautionary savings motive or by myopic houhold behavior.The effect appears to be weaker among homeowners with positive home equity,who have unud borrowing capacity.However,since predictable changes in aggregate and not regional hou prices matter,and since the consumption of renters also responds
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J.Y.Campbell,J.F.Cocco /Journal of Monetary Economics 54(2007)591–621594
J.Y.Campbell,J.F.Cocco/Journal of Monetary Economics54(2007)591–621595 to predictable hou price changes,we conclude that the effects operate at the aggregate rather than the houhold or regional level.
宋江的主要事迹In our analysis we define cohorts by variables that houholds themlves choo, namely location and homeownership.In order to control for the endogeneity of cohort membership,one should estimate a lection equation jointly with the consumption Euler equation on the houhold level.Unfortunately,due to the repeated cross ction nature of the data,this is not feasible.We therefore address endogeneity in veral other ways.First, we u the British houhold panel survey(BHPS)to calculate measures of mobility across cohorts for different age groups.This analysis tells us thatfirst-time home purchas are the most common form of cohort transition.Second,we u the length of time that a houhold has resided at its prent address to implement alternative cohort definitions for young homeowners.Third,we calibrate a life-cycle model of consumption and housing choices.We u the model to generate simulated data in which we can asss the potential bias introduced by our endogenous cohort definitions.We also u this model to help us interpret our empirical results.
There is a small recent literature that us microeconomic data to study housing.Much of this literature asks how housing affects savings and ast allocation.Engelhardt(1996), Flavin and Yamashita(2002),Goetzmann(1993),Sheiner(1995),and Skinner(1994) prent empirical results,while Cocco(2005)and Yao and Zhang(2005)develop life-cycle models(e Leung,2004for a r
eview).Attanasio and Weber(1994),in the paper that is clost to ours,u FES micro data to investigate whetherfinancial liberalization in the 1980s was responsible for the UK consumption boom at the end of that decade.Attanasio and Weber study the consumption patterns of different groups that are likely to be differently affected byfinancial liberalization,including homeowners and renters,and houholds living in different regions.However,they do not estimate consumption elasticities with respect to hou prices for the groups.This and our model of consumption and housing choices are the main contributions of our paper.
The paper is organized as follows:Section2describes the data,and prents some summary statistics.This ction also describes the different ways in which we construct pudo-panels from repeated cross ctions.Section3prents estimation results for our baline regression,which consists of regressing changes in cohort consumption on changes in hou prices,controlling for changes in cohort income,leverage,and demographic variables.In Section4we t up and solve a life-cycle model of the consumption and housing choices of houholds.We u this model to help us interpret our empirical results.In Section5we distinguish predictable and unpredictable movements in hou prices and consumption,thereby partially dintangling wealth effects from other effects of hou prices that work through borrowing constraints,precautionary saving,or myopic
behavior.Section6concludes.The Appendix to this paper(Campbell and Cocco, 2005,available online)provides additional robustness checks.
那我就不客气了2.The data
2.1.The family expenditure survey
We obtain houhold-level data from the UK FES over the period1988to2000.The FES is a continuous survey of houholds.Each houhold is interviewed only once.Each quarter there are about1,750houholds interviewed,so that over the13years that
