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Evidence on the Relationship between Housing and Consumption in the United States: A State‐Level Analysis
Author(s) -
ABDALLAH CHADI S.,
LASTRAPES WILLIAM D.
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12016
Subject(s) - economics , consumer spending , consumption (sociology) , home equity , collateral , equity (law) , demand shock , monetary economics , house price , demographic economics , labour economics , macroeconomics , finance , social science , recession , sociology , political science , law
We estimate the dynamic effects of U.S. housing market shocks on state‐level spending and home prices from a dynamic common factor model, and identify housing demand and supply shocks using a sign‐restrictions approach. While state‐level spending and house prices gradually respond positively and persistently to aggregate housing demand shocks, there is significant variation across states in the magnitude of these responses. Cross‐state regressions of the estimated responses on an index of mortgage market development suggest that spending in states with greater opportunities for home equity borrowing is more sensitive to housing demand shocks than in states with fewer opportunities, which is consistent with the prominence of a “collateral” channel over a “wealth” channel in explaining the link between housing and the overall economy.