Housing Demand Shocks and Households’ Balance Sheets
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Date
2021-02
Publication Type
Working Paper
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yes
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Abstract
We examine the dynamic effects of housing demand shocks on a large set of U.S. macroeconomic series and detailed household balance sheet components for four wealth percentile groups. The results show that a positive housing shock translates into a large and persistent boom of economic activity, an expansion of credit and an increase of interest rates. While households of all wealth percentile groups make heavy use of home equity-based borrowing, we find a larger consumer spending sensitivity for weaker balance sheet households. This is supported by the elasticities of consumption with respect to house prices implied by our structural dynamic factor model. A historical decomposition suggests that housing demand shocks have largely contributed to the pronounced drop in poorer households’ consumption during the Great Recession. Variance decompositions indicate that the identified housing shock has high explanatory power for key economic indicators, housing indices and household balance sheet series.
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published
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Volume
492
Pages / Article No.
Publisher
KOF Swiss Economic Institute, ETH Zurich
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Subject
Housing demand shocks; Household balance sheets; Bayesian dynamic factor model
Organisational unit
06330 - KOF FB Konjunktur / KOF Macroeconomic forecasting
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
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