TY  - JOUR
AU  - Carroll,Christopher D.
AU  - Otsuka,Misuzu
AU  - Slacalek,Jirka
TI  - How Large Is the Housing Wealth Effect?  A New Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12746
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12746
L1  - http://www.nber.org/papers/w12746.pdf
N1  - Author contact info:
Christopher D. Carroll
Department of Economics
Mergenthaler 440
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7602
Fax: 410/516-7600
E-Mail: ccarroll@jhu.edu

Misuzu Otsuka
6 ADB Avenue
Mandaluyong City 1550
Philippines
E-Mail: misuzu42@yahoo.com

Jiri Slacalek
E-Mail: jiri.slacalek@gmail.com
AB  - This paper presents a simple new method for estimating the size of 'wealth effects' on aggregate consumption. The method exploits the well-documented sluggishness of consumption growth (often interpreted as 'habits' in the asset pricing literature) to distinguish between short-run and long-run wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a $1 change in housing wealth is about 2 cents, with a final long-run effect around 9 cents. Consistent with several recent studies, we find a housing wealth effect that is substantially larger than the stock wealth effect. We believe that our approach is preferable to the currently popular cointegration- based estimation methods, because neither theory nor evidence justifies faith in the existence of a stable cointegrating vector.
ER  -