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Can the Consumption–Wealth Ratio Predict Housing Returns? Evidence from OECD Countries
Author(s) -
Caporale Guglielmo Maria,
Sousa Ricardo M.,
Wohar Mark E.
Publication year - 2016
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12135
Subject(s) - consumption (sociology) , economics , autonomous consumption , monetary economics , contrast (vision) , labour economics , financial economics , macroeconomics , aggregate expenditure , social science , artificial intelligence , sociology , computer science
We use a representative consumer model to analyze the relation between the transitory deviations of consumption from its common trend with aggregate wealth and labor income, cay , and the housing risk premium. The evidence based on data for 15 OECD countries shows that, if financial and housing assets are seen as complements, investors will temporarily allow consumption to rise when they expect a rise in future housing returns. By contrast, if housing assets are treated as substitutes for financial assets, consumption will be reduced.