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Consumption, Housing Wealth and Financial Crises

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  • Ray Barrell

    (National Institute of Economic and Social Research)

  • Simon Kirby

    (National Institute of Economic and Social Research)

Abstract

This note reviews recent Institute work on the factors that might affect the future evolution of consumption. Drawing on Barrell and Davis (2007), it discusses the evidence for the effects of housing wealth on consumption, and shows that there has been strong and well supported evidence for a link for some time. This evidence suggests that a fall in house prices will cause consumption growth to slow. The discussion also covers evidence from Barrell, Davis and Pomerantz (2006) on the effects of financial crises on consumption behaviour. They suggest that there are large and significant negative effects on consumption during banking crises that are over and above the effects on consumption of the crisis-induced changes in income and wealth. Much of this work is embedded in our structural model, NiGEM, and it is possible to estimate the effects of house price declines and financial crises on consumption and income using the model. The note also gives a set of ready reckoners for the impacts of house price declines on output and of a given associated fall in the level of housing wealth on the level of consumption.
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Suggested Citation

  • Ray Barrell & Simon Kirby, 2008. "Consumption, Housing Wealth and Financial Crises," National Institute Economic Review, National Institute of Economic and Social Research, vol. 205(1), pages 57-60, July.
    • Handle: RePEc:sae:niesru:v:205:y:2008:i:1:p:57-60
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    Cited by:

    1. Gerlach-Kristen, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "How do banking crises affect aggregate consumption? Evidence from international crisis episodes," Papers WP464, Economic and Social Research Institute (ESRI).
    2. Jeffry Jacob & Abdul Munasib, 2020. "Do social networks promote homeownership?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(2), pages 189-230, June.

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