House prices, collateral constraint, and the asymmetric effect on consumption

Nan Kuang Chen, Shiu Sheng Chen, Yu Hsi Chou

Research output: Contribution to journalArticle

25 Citations (Scopus)

Abstract

This paper investigates the asymmetric effect of house prices on various categories of consumption under constrained and unconstrained regimes. We first present a simple theoretical model based on Iacoviello (2004) and Luengo-Prado (2006), explicitly considering the dual role of housing and linking credit constraints to the behavior of consumption in a pair of aggregate Euler equations. We then estimate a threshold regression model and find that LC-PIH holds only under the unconstrained regime. More importantly, durable consumption exhibit a very strong asymmetric effect in response to changes in house prices, while other categories of consumption do not exhibit this asymmetry.

Original languageEnglish
Pages (from-to)26-37
Number of pages12
JournalJournal of Housing Economics
Volume19
Issue number1
DOIs
Publication statusPublished - 2010 Mar 1
Externally publishedYes

Keywords

  • Collateral constraint
  • House prices
  • Permanent income hypothesis
  • Threshold regression

ASJC Scopus subject areas

  • Economics and Econometrics

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