The editor in charge of this paper was Fabrizio Zilibotti.
DO HOUSE PRICES DRIVE CONSUMPTION GROWTH? THE COINCIDENT CYCLES OF HOUSE PRICES AND CONSUMPTION IN THE UK
Article first published online: 5 APR 2011
© 2011 by the European Economic Association
Journal of the European Economic Association
Volume 9, Issue 3, pages 399–435, June 2011
How to Cite
Attanasio, O., Leicester, A. and Wakefield, M. (2011), DO HOUSE PRICES DRIVE CONSUMPTION GROWTH? THE COINCIDENT CYCLES OF HOUSE PRICES AND CONSUMPTION IN THE UK. Journal of the European Economic Association, 9: 399–435. doi: 10.1111/j.1542-4774.2011.01021.x
Acknowledgments: Financial support from the ESRC (Grant RES-000-22-1913) is gratefully acknowledged. This work builds on several previous joint works with a collection of co-authors. We fully acknowledge the contributions to our thoughts of Laura Blow, Renata Bottazzi, Robert Hamilton, Hamish Low, Lars Nesheim and Guglielmo Weber. Special thanks are due to Hamish for his generosity in sharing his knowledge of constructing and solving dynamic models. We also thank Richard Blundell, Christopher D. Carroll, Marjorie Flavin, Costas Meghir, Francois Ortalo-Magné, Victor Rios-Rull for helpful discussions and an anonymous referee and a co-editor for useful comments. This paper was delivered as the Schumpeter Lecture at the Meetings of the European Economic Association held in Glasgow in August 2010. Early versions were presented at the University of Frankfurt, the Board of Governors of the FED, the NBER Summer Institute 2008 (meeting on Aggregate Implications of Microeconomic Consumption Behaviour), the Royal Economic Society Annual Conference 2008, the Bank of England and the University of Padova, where we received useful feedback. Data from the Family Expenditure Survey/Expenditure and Food Survey are Crown Copyright and used with the permission of the Controller of HMSO and the Queen’s Printer for Scotland. We acknowledge the Office for National Statistics and Department for Environment Food and Rural Affairs as the original data creators and the UK Data Archive as the source of the data. Data from the British Household Panel Survey are collected by the Institute for Economic and Social Research, funded by the Economic and Social Research Council and downloaded from the UK Data Archive. These organizations bear no responsibility for the analysis or interpretation of the data in this paper. Attanasio is a member of the NBER and CEPR. The usual disclaimer applies.
- Issue published online: 11 MAY 2011
- Article first published online: 5 APR 2011
This paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption. The model includes price and earnings shocks estimated from data (the latter including aggregate and idiosyncratic components), and incorporates realistic features of the UK mortgage market. We simulate the model using more than 30 years of realized shocks and under counterfactual scenarios. Our results confirm the intuition of earlier studies: house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households.