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Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints

Author

Listed:
  • Aruoba, Boragan
  • Elul, Ronel
  • Kalemli-Özcan, á¹¢ebnem

Abstract

We quantify the role of heterogeneity in households’ financial constraints in ex- plaining the large decline in aggregate consumption between 2006 and 2009 using individual-level data. Financial constraints can explain 56% of the aggregate response of consumption to changes in house prices. Local general equilibrium feedback and de- cline in bank credit to consumers make up the remaining 44%. Our results show that a large part of the response that was attributed to wealth effects in the prior literature, can in fact be explained by heterogeneity in households’ financial constraints.

Suggested Citation

  • Aruoba, Boragan & Elul, Ronel & Kalemli-Özcan, á¹¢ebnem, 2022. "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," CEPR Discussion Papers 17747, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17747
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    More about this item

    Keywords

    Financial crisis; Mortgage; Individual-level data; General equilibrium; Bank health; Credit supply; Wealth effects;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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