scholarly journals The Effects of Regional House Prices on Consumption in Korea: Heterogeneous Behaviors According to Homeownership Status and Lifecycle Stage

2020 ◽  
Vol 12 (9) ◽  
pp. 3517
Author(s):  
Jong Chil Son ◽  
Hail Park
Keyword(s):  
House Prices ◽  
Borrowing Constraints ◽  
Young Cohort ◽  
Empirical Estimation ◽  
Income Volatility ◽  
Consumption Growth ◽  
Full Sample ◽  
Household Level ◽  
Positive Effects ◽  
Age Cohort

This paper investigates the effects of regional house prices on consumption growth, with a focus on heterogeneity across homeownership statuses and lifecycle stages, using household-level panel data in Korea from 2004 to 2017. The empirical estimation results indicate, firstly, that the growth of regional house prices has overall positive effects on consumption growth in the full sample including homeowners and renters. Secondly, house prices have significant and large effects on consumption growth for homeowners, while the effects are sharply reversed for renters, being weakly negative. Thirdly, the sensitivity of homeowners’ consumption in response to house prices differs across different stages of the lifecycle. The consumption sensitivity is greatest in the old age cohort for the sample covering the owners of single and multiple homes. When using a subsample of only single homeowners, however, the young cohort turns out to have the highest sensitivity, implying that young single homeowners face high borrowing constraints and expected income volatility. Finally, renters’ consumption sensitivity in response to house prices becomes more negative over the lifecycle.

scholarly journals Remittances and Income Smoothing

2011 ◽  
Vol 101 (3) ◽  
pp. 582-587 ◽  
Author(s):  
Catalina Amuedo-Dorantes ◽  
Susan Pozo
Keyword(s):  
Developing Countries ◽  
Household Income ◽  
Borrowing Constraints ◽  
Income Smoothing ◽  
Reverse Causality ◽  
Income Volatility ◽  
Household Level ◽  
Level Data ◽  
Main Motive

Due to inadequate savings and binding borrowing constraints, income volatility can make households in developing countries particularly susceptible to economic hardship. We examine the role of remittances in either alleviating or increasing household income volatility using Mexican household level data over the 2000 through 2008 period. We correct for reverse causality and endogeneity and find that while income smoothing does not appear to be the main motive for sending remittances in a non-negligible share of households, remittances do indeed smooth household income on average. Other variables surrounding income volatility are also considered and evaluated.

Real Estate

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Real Estate ◽  
Great Recession ◽  
House Prices ◽  
Borrowing Constraints ◽  
Macroeconomic Models ◽  
Land Prices ◽  
The Great Recession ◽  
Quantitative Importance

Chapter 6 examines real estate as a neglected feature of actual economies. It begins with an empirical overview demonstrating the preeminent role of land as a part of nonfinancial wealth. Whereas many macroeconomic models represent nonfinancial wealth by a symbol K that is interpreted as machines and equipment (if not robots), the text makes clear that such items are of minor quantitative importance. In contemporary economies, nonfinancial wealth consists chiefly of real estate. This is the proper reason so many analysts conjecture a link between house prices and the Great Recession. Changes in house prices (primarily changes in land prices) operate on the economy through their influence on nonfinancial wealth. Nonfinancial wealth affects consumption directly and investment indirectly since it relaxes or tightens borrowing constraints. Building on the results obtained in previous chapters, the text studies housing manias and leverage cycles and relates its main findings to US data.

scholarly journals Saving Behavior and Housing Wealth Evidence from German Micro Data

2018 ◽  
Vol 238 (6) ◽  
pp. 501-539
Author(s):  
Sören Gröbel ◽  
Dorothee Ihle
Keyword(s):  
House Prices ◽  
House Price ◽  
Wealth Effect ◽  
Housing Wealth ◽  
Price Shocks ◽  
Household Level ◽  
Underlying Causes ◽  
Saving Behavior ◽  
Housing Wealth Effect ◽  
Important Position

Abstract Housing property is the most important position in a household’s wealth portfolio. Even though there is strong evidence that house price cycles and saving patterns behave synchronously, the underlying causes remain controversial. The present paper examines if there is a wealth effect of house prices on savings using household-level panel data from the German Socio-Economic Panel for the period 1996-2012. We find that young homeowners decrease their savings in response to unanticipated house price shocks, whereas old households hardly respond to house price changes. Although effects are relatively low in magnitude, we interpret this as evidence of a housing wealth effect.

Are regional house prices stationary in Iran? New evidence using Fourier quantile unit root test

2019 ◽  
Vol 12 (5) ◽  
pp. 849-864
Author(s):  
Arash Hadizadeh
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
Unit Root ◽  
House Prices ◽  
Housing Prices ◽  
Unit Root Test ◽  
Generalized Least Squares ◽  
Main Concern ◽  
Content Type ◽  
Positive Effects

Purpose In the Iranian economy, investing in the housing market has been very important and beneficial for investors and households, because of inflationary environment, low real interest rates, underdeveloped financial and tax systems and economic sanctions. Hence, prediction of house prices is the main concern of housing market agents in the economy. The purpose of this paper is to test the stationary properties of Iran's provinces to improve the prediction of future housing prices. Design/methodology/approach In this paper, the authors have tested the stationary properties of 20 Iran’s province centers over the period from 1993 to 2017 using a novel Fourier quantile unit root test and conventional ordinary/generalized least squares (O/GLS) linear unit root/stationary tests. Findings According to conventional O/GLS linear unit root/stationary tests, most of the house prices series exhibit random walk behavior, whereas by applying the Fourier quantile unit root test, the null hypothesis of unit root is rejected for 15 out of 20 series. Other results indicated that house prices of cities responded differently to positive and negative shocks. Originality/value Previous studies only addressed conventional OLS or GLS linear unit root or stationary tests, but novel Fourier quantile unit root test was not used. New results were obtained based on this unit root test, that, as a priori knowledge, will help benefiting from the positive effects, or avoiding being victimized by the negative effects.

scholarly journals Precautionary Saving and Consumption Fluctuations

2005 ◽  
Vol 95 (4) ◽  
pp. 1119-1143 ◽  
Author(s):  
Jonathan A Parker ◽  
Bruce Preston
Keyword(s):  
The United States ◽  
Precautionary Saving ◽  
Consumption Growth ◽  
Average Growth ◽  
Household Level ◽  
Nondurable Goods ◽  
Consumption Expenditures ◽  
New Information ◽  
Level Data ◽  
Consumption Fluctuations

This paper uses the consumption Euler equation to derive a decomposition of consumption growth into four sources. These four sources are new information, and three sources of predictable consumption growth: intertemporal substitution, changes in the preferences for consumption, and incomplete markets for consumption insurance. Using household-level data, we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the United States from 1982 to 1997. The economic importance of precautionary saving rivals that of the real interest rate, but the relative importance of each source of movement in the volatility of consumption is not precisely measured.

scholarly journals Household Earnings and Income Volatility in the UK, 2009–2017

2021 ◽  
Author(s):  
Silvia Avram ◽  
Mike Brewer ◽  
Paul Fisher ◽  
Laura Fumagalli
Keyword(s):  
Tax Credits ◽  
Older Individuals ◽  
Income Shocks ◽  
Income Volatility ◽  
Household Level ◽  
The Great Recession ◽  
Welfare Benefits ◽  
Working Age ◽  
The Stability ◽  
The Uk

AbstractWe study the volatility of sources of individual and household level income in the UK in the years 2009-2017, following the Great Recession and government austerity. We find that the volatility of (pre-tax) earnings and disposable income has fallen for the working-age in this period, largely due to fewer negative and large earnings shocks. For older individuals, we also find a fall in the volatility of private income, mainly due to fewer positive and large income shocks. Taxes and transfers help stabilise incomes, with social security cash benefits and income-dependent refundable tax credits reducing household private income volatility by around a quarter for the working age, and 40 percent for those aged 60 or over. However, over the sample period, taxes and benefits became less well correlated with earnings, reducing their ability to counteract swings in labour income. The findings illustrate the consequences of fiscal retrenchment and the cut-backs to welfare benefits on the stability of incomes.

scholarly journals Welfare Implications of Credit Rationing for Financial Consumers: An Empirical Investigation on the Case of the Korean Residential Mortgage Sector

2020 ◽  
Vol 5 (No. 1 Apr 2020) ◽  
pp. 13-24 ◽  
Author(s):  
Soojin Park ◽  
Man Cho
Keyword(s):  
Financial Stability ◽  
Choice Model ◽  
Credit Rationing ◽  
Borrowing Constraints ◽  
Mortgage Lending ◽  
Financial Inclusion ◽  
Policy Implications ◽  
Negative Effects ◽  
Household Level ◽  
Residential Mortgage

Credit rationing through borrowing constraints has long been an important research topic in the literature, in the context of managing financial risks (i.e., financial stability) as well as of expanding financial service to more marginal borrower segments (i.e., financial inclusion). This study empirically investigates the role of borrowing constraints in the residential mortgage lending sector in Korea, by utilizing a discrete tenure choice model to test the constraining effects of two particular lending restrictions on households’ home owning decisions - the wealth and income constraints as measured by the maximum loan-to-value (LTV) ratio and that of debt-to-income (DTI) ratio. Using the household-level micro data from Korea, we report that: the lending restrictions exhibit negative effects on the propensity to own; those constraining effects are also shown to increase for younger borrower cohorts; and, the magnitude of the effect of wealth constraint is larger than that of the income constraint, which is consistent with the findings from the prior studies. Using the empirical findings, we discuss policy implications of relevancy, in particular, as to how to balance between two often competing policy objectives - ensuring financial stability and extending financial inclusion - in the context of the residential mortgage lending sector in Korea.

Consumption, Housing Wealth and Financial Crises

2008 ◽  
Vol 205 ◽  
pp. 57-60 ◽  
Author(s):  
Ray Barrell ◽  
Simon Kirby
Keyword(s):  
Financial Crises ◽  
Structural Model ◽  
House Prices ◽  
House Price ◽  
Banking Crises ◽  
Housing Wealth ◽  
Negative Effects ◽  
Consumption Growth ◽  
Future Evolution ◽  
Induced Changes

This note reviews recent Institute work on the factors that might affect the future evolution of consumption. Drawing on Barrell and Davis (2007), it discusses the evidence for the effects of housing wealth on consumption, and shows that there has been strong and well supported evidence for a link for some time. This evidence suggests that a fall in house prices will cause consumption growth to slow. The discussion also covers evidence from Barrell, Davis and Pomerantz (2006) on the effects of financial crises on consumption behaviour. They suggest that there are large and significant negative effects on consumption during banking crises that are over and above the effects on consumption of the crisis-induced changes in income and wealth. Much of this work is embedded in our structural model, NiGEM, and it is possible to estimate the effects of house price declines and financial crises on consumption and income using the model. The note also gives a set of ready reckoners for the impacts of house price declines on output and of a given associated fall in the level of housing wealth on the level of consumption.

The Macroeconomic Determinants of House Prices and Rents

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jakob Shida
Keyword(s):  
Interest Rates ◽  
Housing Stock ◽  
House Prices ◽  
Bank Lending ◽  
Negative Effects ◽  
Positive Effects ◽  
Negative Effect ◽  
Per Capita ◽  
Pricing Power ◽  
Macroeconomic Determinants

Abstract Based on panel error correction models for a sample of up to 21 countries, this paper analyses the macroeconomic determinants of house prices and rents. In accordance with the existing literature, I find significantly positive effects of per capita income and bank lending on house prices, whereas the housing stock per capita and interest rates have negative effects. For rents, the results are somewhat more remarkable, indicating that both the housing stock and interest rates have a negative effect. While contradicting conventional economic theory, the latter finding might be explained by real estate investors exploiting their pricing power with varying degree depending on the level of real interest rates. Moreover, the estimated impact of interest rates on both house prices and rents varies with structural housing market characteristics. For instance, while interest rates have a more pronounced effect on house prices in countries with more developed mortgage markets, the same does not hold for the effect of interest rates on rents.

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