Comparing Wealth Effects: The Stock Market versus the Housing Market

TLDR

The study investigates how rises in housing and financial wealth affect consumer spending. Using annual data from 14 countries and quarterly U.S. state data over 25 years, the authors imputed housing, financial, and consumption aggregates and estimated regression models in levels, first differences, and error‑correction form to relate consumption to income and wealth.

Abstract

Abstract We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating consumption to income and wealth measures. We find a statistically significant and rather large effect of housing wealth upon household consumption.