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HOUSING OVER TIME AND OVER THE LIFE CYCLE: A STRUCTURAL ESTIMATION
Author(s) -
Li Wenli,
Liu Haiyong,
Yang Fang,
Yao Rui
Publication year - 2016
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12196
Subject(s) - economics , consumption (sociology) , econometrics , income elasticity of demand , estimation , benchmark (surveying) , elasticity (physics) , sample (material) , structural estimation , house price , microeconomics , social science , chemistry , materials science , management , geodesy , chromatography , sociology , composite material , geography
We construct a model of optimal life‐cycle housing and nonhousing consumption and estimate the elasticity between the two goods to be 0.487. The estimate is robust to different assumptions of housing adjustment cost, but sensitive to the choice of sample period and the degree of aggregation of data moments. We then conduct experiments in which house prices and household income fluctuate. Compared with the benchmark, the impact of the shocks on homeownership rates is reduced, but the impact on nonhousing consumption is magnified when housing service and nonhousing consumption are highly substitutable or when the house selling cost is sizable.