Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints
We quantify the role of heterogeneity in households’ financial constraints in explaining the link between the large decline in aggregate consumption and the decline in house values between 2006 and 2009 using individual-level data. Constraints that are triggered by a decline in house values, and a small fraction of consumers facing particularly severe constraints prior to the decline in house values explain 76% of the aggregate response. Local general equilibrium feedback and a decline in bank credit to consumers make up the remaining 24%. We find no contribution of a pure wealth effect in explaining the consumption decline.
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Copy CitationS. Borağan Aruoba, Ronel Elul, and Ṣebnem Kalemli-Özcan, "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," NBER Working Paper 30591 (2022), https://doi.org/10.3386/w30591.Download Citation
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