Saturday, December 22, 2012

Wealth Effects Revisited 1975-2012

By Karl E. Case, John M. Quigley and Robert J. Shiller
In our earlier version of this paper we found that households increase their spending when house prices rise, but we found no significant decrease in consumption when house prices fall. The results presented here with the extended data now show that declines in house prices stimulate large and significant decreases in household spending.

The elasticities implied by this work are large. An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%. A decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%.
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1 comment:

  1. Great post! I enjoyed reading your blog since I'm studying a lot on how to maintain finances, wealth and how to avoid debts, I'm actually joiningcfp classes online It's really fun to learn more about it.