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UID:14826a8324198df48845de95a8756023
CATEGORIES:Seminars
CREATED:20161213T173052
SUMMARY:Lunch Seminar: Veronica Guerrieri - Chicago Booth
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:House Prices and Consumer Spending\nAbstract:\nThe paper studies the effect
 s of house prices on consumption in a life-cycle model with income uncertai
 nty and precautionary savings. First, we focus on the response of consumpti
 on to a one-time, permanent increase in house prices. We show that, with Co
 bb-Douglas preferences, the individual response is given by a simple formul
 a: the marginal propensity to consume out of temporary income times housing
  holdings. In the aggregate, the model can generate very large effects of h
 ouse prices of consumption—with an elasticity of 0.3-0.4 for working age ho
 useholds—because it features an endogenous distribution in which some house
 holds have substantial housing holdings and, at the same time, are highly l
 evered and have high MPC. We extend the model to allow for fixed costs of a
 djustment in housing and for a rental option. Our simple formula continues 
 to be a good approximation in the extended model. Aggregate elasticities ar
 e still sizeable—in the order of 0.1-0.15—-but smaller than in the baseline
 , because agents with low net worth tend to self-select into renting. Next,
  we use the model to explore the consumption implications of a boom-bust in
  house prices. To generate a boom-bust in residential investment, we introd
 uce time-varying expectations of future housing appreciation. The model’s h
 igh elasticities contribute to generate substantial fluctuations in consump
 tion as a result of house price dynamics. The endogenous evolution of house
 hold debt plays a crucial role, as the increased leverage in the boom phase
  contributes substantially to the consumption contraction when the boom end
 s.\n
DTSTAMP:20260404T064049Z
DTSTART:20150608T130000Z
DTEND:20150608T140000Z
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