This paper analyzes the existence of “wealth effects” derived from net equity (in the form of housing, financial assets, and total net worth) on consumption. The study uses longitudinal household-level data?from the Panel Study of Income Dynamics (PSID) ?covering about 7,000-9,000 households in the U.S., with the estimations carried over the period 1999-2017. Overall, wealth effects are found to be relatively large and significant for housing wealth, but less so for other types of wealth, including stocks. Furthermore, the analysis shows how these estimated marginal propensities to consume (MPC) from wealth are closely linked to household characteristics, including income and demographic factors. Finally, underlying structural changes in household characteristics point to potentially lower aggregate MPCs from wealth going forward.

This paper uses a large panel dataset that tracks the housing wealth and spending behavior of 12,793 individuals in Hong Kong to study how housing wealth affects household consumption. Housing wealth is measured based on the repeated-sales price indices of nine districts in Hong Kong, which are estimated using government registry of all the 900,000 repeated housing transactions. Consumption is measured by credit card charges provided by the five largest credit card issuers in Hong Kong. These detailed data make it possible to identify consumption responses to housing wealth based on time-series variation within individual households (through household fixed effects). Further, rich variations across households help pin down the mechanism of the observed consumption sensitivity.I find a significant effect of housing wealth on consumption. Such an effect seems to be on account of a reduction in precautionary saving, as opposed to relaxation of borrowing constraints. In particular, consumption sensitivity exists even in the absence of refinancing and occurs only among less leveraged households and younger households who behave like quot;buffer stockquot; consumers (Gourinchas and Parker, 2002). Finally, consumption does not respond to predictable changes in housing wealth, which is inconsistent with liquidity constraints. The results highlight the importance of housing wealth in influencing consumption even in the absence of refinancing and relaxation of credit constraints.

During the recession in the years 2008-2009, the most severe for mature economies in the post-war period, housing markets were often mentioned as having a special responsibility. The objective of this book is to shed light on the cyclical behaviour of the housing markets, its fundamental determinants in terms of supply and demand characteristics, and its relationship with the overall business cycle. The co-movements of house prices across countries are also considered, as well as the channel of transmission of house price changes to the rest of the economy. Particular attention is paid to the effects on private consumption, through possible wealth effects. The book is a compilation of original papers produced by economists and researchers from the four main national central banks in the euro area, also with the participation of leading academics.

Households across Europe are struggling with a double crisis—the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth. In this paper, using quarterly data on 20 countries in Europe over the period 1980–2023, we analyze the dynamic relationship between inflation-adjusted housing wealth and consumer spending and obtain statistically significant and economically intuitive results. Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Using the estimated coefficients, we can deduce that the average quarter-on-quarter decline of -1.96 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about -0.51 percentage points in real terms on a cumulative basis over a horizon of eight quarters.