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House Prices and Consumption Inequality

Etheridge, Ben (2019) 'House Prices and Consumption Inequality.' International Economic Review, 60 (4). 1781 - 1822. ISSN 0020-6598

BE_ConsIneqHP_AfterR2_2018.pdf - Accepted Version

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I characterize how house price shocks affect consumption inequality using a life-cycle model of housing and nonhousing consumption with incomplete markets. I derive analytical expressions for the dynamics of inequalities and use these to analyze large house prices swings seen in the UK. I show that movements in consumption inequality were large, that they correspond with the theoretical predictions qualitatively, and that the model explains a large fraction of the movements quantitatively. I demonstrate the accuracy of this analysis using an extended model’s full non-linear solution. Finally, accounting for house price shocks alters estimates of labour-income risks using cross-sectional data.

Item Type: Article
Uncontrolled Keywords: Consumption inequality, Wealth effect, Collateral effect, Housing
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 30 Jan 2019 14:48
Last Modified: 14 Apr 2021 01:00

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