This paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption. The model includes price and earnings shocks estimated from data (the latter including aggregate and idiosyncratic components), and incorporates realistic features of the UK mortgage market. We simulate the model using more than 30 years of realized shocks and under counterfactual scenarios. Our results confirm the intuition of earlier studies: house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households.
Authors
Matthew Wakefield
Matthew is Associate Professor at the University of Bologna focusing on consumption and savings choices and how policy affects them.
Orazio Attanasio
Orazio is an International Research Fellow at the IFS, a Professor at Yale and a Research Associate at the National Bureau of Economic Research.
Andrew Leicester
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