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How Large Is the Housing Wealth Effect? A New Approach / Christopher D. Carroll, Misuzu Otsuka, Jirka Slacalek.
- Format:
- Book
- Author/Creator:
- Carroll, Christopher D.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w12746.
- NBER working paper series no. w12746
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2006.
- Summary:
- This paper presents a simple new method for estimating the size of 'wealth effects' on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as 'habits' in the asset pricing literature) to distinguish between short-run and long-run 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 long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegration- based estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector.
- Notes:
- Print version record
- December 2006.
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