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Housing choices and their implications for consumption heterogeneity

Published online by Cambridge University Press:  11 November 2021

Eva de Francisco
Eva de Francisco*
Affiliation:
U.S. Bureau of Economic Analysis
*
Email: eva.defrancisco@bea.gov
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Abstract

This paper proposes a model to jointly explain two stylized facts observed in the recent empirical literature—the existence of a significant size of wealthy hand-to-mouth consumers and negative marginal propensities to consume associated with housing upgrades. The key ingredients of the model are a realistic set of housing choices, sizable down payment requirements, transaction costs, and endogenous borrowing constraints. Moreover, in the presence of unanticipated income shocks, this richness in marginal propensities to consume has significant implications for aggregate consumption and helps explain the puzzling increase in savings by low net worth households observed during the Great Recession as well as the consumption responses to recent tax rebates.

Keywords

Negative Marginal Propensity to ConsumeHousing ChoicesConsumption HeterogeneityWealthy Hand-to-Mouth Consumersthe Great Recessionand Tax Rebates
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 1 , January 2023 , pp. 56 - 71
Copyright
© The Author(s), 2021. Published by Cambridge University Press

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Footnotes

The views in this paper are solely the responsibility of the author and not those of the US Bureau of Economic Analysis.

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