House prices, collateral constraint, and the asymmetric effect on consumption
Resource
Journal of Housing Economics, 19(1), 26-37
Journal
Journal of Housing Economics
Journal Volume
19
Journal Issue
1
Pages
26-37
Date Issued
2010
Author(s)
Abstract
This paper investigates the asymmetric effect of house prices on various categories of consumption under constrained and unconstrained regimes. We first present a simple theoretical model based on Iacoviello (2004) and Luengo-Prado (2006), explicitly considering the dual role of housing and linking credit constraints to the behavior of consumption in a pair of aggregate Euler equations. We then estimate a threshold regression model and find that LC-PIH holds only under the unconstrained regime. More importantly, durable consumption exhibit a very strong asymmetric effect in response to changes in house prices, while other categories of consumption do not exhibit this asymmetry. © 2009 Elsevier Inc. All rights reserved.
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Type
journal article
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