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The Housing Wealth Effect: Quasi-Experimental Evidence

Author

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  • Kessel, Dany

    (Södertörn University and Research Institute of Industrial Economics (IFN))

  • Tyrefors, Björn

    (Research Institute of Industrial Economics (IFN))

  • Vestman, Roine

    (Stockholm University and Swedish House of Finance)

Abstract

We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately - 15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued as a result of political bargaining. This source of price variation is ideal to identify housing wealth effects since it is local and unrelated to variation in macroeconomic conditions. Using a household data set with granular geographic information on location of primary residence, we find an elasticity of 0.45 among purchasers of new cars. Converting our estimate to an aggregate MPC on cars, it is however only 0.13 cents per dollar. The MPC is entirely concentrated to homeowners with a combined loan-to-value ratio between 0.6 and 0.8 which, on the one hand, confirms the key role of household balance sheets but on the other hand refutes a monotone relationship between response and household leverage.

Suggested Citation

  • Kessel, Dany & Tyrefors, Björn & Vestman, Roine, 2018. "The Housing Wealth Effect: Quasi-Experimental Evidence," Working Paper Series 361, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0361
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    Cited by:

    1. S. Borağan Aruoba & Ronel Elul & Ṣebnem Kalemli-Özcan, 2022. "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," NBER Working Papers 30591, National Bureau of Economic Research, Inc.
    2. Mr. Christopher Carroll & Mr. Martin Sommer & Mr. Jiri Slacalek, 2012. "Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 2012/219, International Monetary Fund.
    3. Lindgren, Samuel, 2018. "Traffic Noise and Housing Values: Evidence from an Airport Concession Renewal," Working papers in Transport Economics 2018:15, CTS - Centre for Transport Studies Stockholm (KTH and VTI), revised 26 Feb 2019.

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    More about this item

    Keywords

    House prices; housing wealth; consumption; house price elasticity; marginal propensity to consume; collateral effect;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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