Credit, Housing Collateral, and Consumption: Evidence From Japan, the U.K., and the U.S.

Aron, Janine; Duca, John V.; Muellbauer, John; Murata, Keiko; Murphy, Anthony

doi:10.1111/j.1475-4991.2011.00466.x

Cited by 175 publications

(160 citation statements)

References 61 publications

(55 reference statements)

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“…Equation (4.4) reduces to a basic REPIH variant assuming that wealth should not be disaggregated (γ 1 = γ 2 = γ 3 = γ), that none of the parameters vary over time and excluding the short-run terms. These restrictions are easily rejected in Aron et al (2012) and Duca, Muellbauer and Murphy (2012a) which find, for the US that the intercept term and the m.p.c. out of housing wealth shifted dramatically.…”

Section: A Credit-and Financial Innovation-augmented Consumption Frammentioning

confidence: 99%

“…In the US, the Federal Reserve's Senior Loan Officer (SLO) Opinion Survey has tracked credit conditions for unsecured consumer credit from banks since 1966 and for bank mortgages since 1990. Muellbauer (2007), Aron et al (2012) and Duca, Muellbauer, and Murphy (2012a) construct a levels index of unsecured consumer credit conditions from the SLO's diffusion index.…”

Section: A Latent Interactive Variable Equation System For Consumptiomentioning

confidence: 99%

“…for stock market wealth is partly due to the other controls, including income growth expectations, and consistent with arguments by Poterba (2000). And the financial instability arising from the recent housing and financial crisis highlights the importance of identifying destabilizing developments in household finance (Aron et al 2012;Duca, Muellbauer, and Murphy (2010).…”

Section: Figure 8 Estimated Contributions Of Real Interest Rates Permentioning

confidence: 99%

“…Another important consideration is that housing wealth effects need not have the same-sized m.p.c. as the other two wealth components since housing is both a consumption good as well as a store of value, see Aron et al (2012). The third overly restrictive, major assumption of the basic REPIH model is that key parameters -particularly on wealth components -are constant over time.…”

Section: A Credit-and Financial Innovation-augmented Consumption Frammentioning

confidence: 99%

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Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Duca¹,

Muellbauer²

2013

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After the global financial crisis, there is greater awareness of the need to understand the interactions between the financial sector and the real economy and hence the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such those of Tobin and the Yale School, and proposes a modeling framework for analysing the household flow of funds jointly with consumption. The consumption function incorporates household income, portfolios of assets and debt held at the end of the previous period, credit availability, and asset prices and interest rates. In a general equilibrium setting, these all have to be endogenised and since households make consumption and housing purchase decisions jointly with portfolio decisions, there is much to be gained in modeling a household sub-system of equations. Major evolutionary structural change -namely the evolving credit architecture facing households -is handled by our 'Latent Interactive Variable Equation System'. A by-product is improved understanding of the secular decline in US saving rate, as well as of the household financial accelerator. Moreover, the models discussed in this paper offer new ways of interpreting data on credit, money and asset prices, which are crucial for central banks.JEL Codes: B22, E21, E44, E51, G11.Key Words: Finance and the real economy, financial crisis, consumption, credit constraints, household portfolios. Non-technical summaryAfter the global financial crisis, there is general awareness, see the report on the first two years of the macro-prudential research network, ECB (2012), of how standard macroeconomics as practiced up to 2008 had failed to understand the interactions between the financial sector and the real economy and so failed to grasp the potential for financial instability. Data from the financial flow of funds, neglected previously, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such as those of the Yale tradition, as the back-ground to new approaches to model linkages between the flow of funds and the real economy. These new approaches throw fresh light on how to interpret data on money and credit. Tobin and Brainard (1963) had anticipated the bank lending channel of monetary transmission as later highlighted by Bernanke and Blinder (1988) and Bernanke and Gertler (1995). Brainard and Tobin's 1968 stylised paper on pitfalls in financial modeling included three sectors (governments, private sector and banks), a set of seven financial assets and focused on investment (rather than consumption) as the key interaction between the financial sector and the real economy. In the 1970s, the Yale school introduced consumption with a systems approach to household flow-of-funds analysis, see Backus and Purvis (1980). However, in the ...

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Section: A Credit-and Financial Innovation-augmented Consumption Frammentioning

confidence: 99%

Section: A Latent Interactive Variable Equation System For Consumptiomentioning

confidence: 99%

Section: Figure 8 Estimated Contributions Of Real Interest Rates Permentioning

confidence: 99%

Section: A Credit-and Financial Innovation-augmented Consumption Frammentioning

confidence: 99%

See 2 more Smart Citations

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Duca¹,

Muellbauer²

2013

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“…7 See Parker (2000) for a comprehensive analysis; see Aron, Duca, Muellbauer, Murata, and Murphy (2011) for comparative evidence from the U.S., the U.K., and Japan emphasizing the role of credit conditions in determining saving in all three countries. propose that our simple structural model provides a useful framework for organizing and thinking about the issues.…”

mentioning

confidence: 99%

Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

Carroll

Sommer²,

Slacalek³

2012

IMF Working Papers

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe argue that the U.S. personal saving rate's long stability (from the 1960s through the early 1980s), subsequent steady decline (1980s2007), and recent substantial increase (20082011) can all be interpreted using a parsimonious`buer stock' model of optimal consumption in the presence of labor income uncertainty and credit constraints. Saving in the model is aected by the gap between`target' and actual wealth, with the target wealth determined by credit conditions and uncertainty. An estimated structural version of the model suggests that increased credit availability accounts for most of the saving rate's long-term decline, while uctuations in net wealth and uncertainty capture the bulk of the business-cycle variation. 1 Non-technical SummaryThe remarkable rise in personal saving during the Great Recession has sparked fresh interest in the determinants of saving decisions. In the United States, for example, the increase in household saving since 2007 was generally sharper than after any other postwar recession, and the personal saving rate has remained well above its pre-crisis value for the past ve years. While the saving rise partly reected a decline in spending on durable goods, spending on nondurables and services was also unprecedentedly weak.Carroll ( This paper aims to quantify these three channels, both over the long span of historical experience and for the period since the beginning of the Great Recession.To x ideas, the paper begins by presenting a tractable`buer stock' saving model with explicit and transparent roles for each of the inuences emphasized above (the precautionary, wealth, and credit channels). The model's key intuition is that, in the presence of income uncertainty, optimizing households have a target wealth ratio that depends on the usual theoretical considerations (risk aversion, time preference, expected income growth, etc), and on two features that have been harder to incorporate into analytical models:The degree of labor income uncertainty and the availability of credit. Our model yields a tractable analytical solution that can be used to calibrate how much saving should go up in response to an increase in uncertainty, or a negative shock to wealth, or a tightening of liquidity constraints.We highlight one particularly interesting implication of the model: In response to a permanent worsening in economic circumstances (such as a permanent increase in unemployment risk), consu...

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Financial wealth effects and consumption expenditure

Swamy¹

2020

Int. J Fin Econ

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There has been a renewed interest in the wealth effects on household consumption expenditure mostly in the background of the global financial crisis and Eurozone turmoil. The available literature on wealth effects mostly focuses on advanced economies. Hence, this article studies the financial wealth effects on private final consumption expenditure (PFCE) in an emerging economy like India. We use the quarterly data for the period 1951-2015 and employ the ARDL method that has the flexibility in overcoming the econometric issues associated with the traditional methods in the analysis of time series models. The results suggest that financial assets wealth in the form of stock market capitalization (MC) significantly affects the PFCE. This article establishes the long-run positive relationship between financial wealth assets and household consumption. The major inference is that households are closely linked with the financial markets through their investments in the form of insurance, mutual funds, company deposits, company stocks, and other forms. Hence their consumption behavior is significantly affected by the financial wealth created by the financial markets. The policy implication is to make the financial markets more transparent, easy to access by reducing the related financial intermediation costs leading to a deeper integration of the households with the financial markets, which in turn would result in increased financial asset wealth generation and consequently increased household consumption to boost economic growth.

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Credit, Housing Collateral, and Consumption: Evidence From Japan, the U.K., and the U.S.

Cited by 175 publications

References 61 publications

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

Financial wealth effects and consumption expenditure

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