CFDP 1459

Household Reaction to Changes in Housing Wealth


Publication Date: April 2004

Pages: 16


It is widely claimed that housing wealth, as well as stock prices, have an impact on consumption and hence on aggregate economic activity. This paper presents a broad overview of the issues that arise in evaluating this claim in the context of recent research in behavioral economics. Particular attention is paid to a model of the response of consumption to wealth components produced by Christopher Carroll [2004].


Wealth effect, home prices, stock prices, consumption, saving, life cycle theory, interest rates, inflation, bubble

JEL Classification Codes:  E21