Consumption excess sensitivity, liquidity constraints and the collateral role of housing
By: Andrew Benito and Haroon Mumtaz
Contributors: Mumtaz, Haroon; Bank of England
Series: Working paper -- no. 306; Working paper (Bank of England : Online) -- no. 306.
Publisher: Bank of England
Published: 2006
Place of publication: London
Language: eng
Format: [electronic resource] /
Description: "Using a switching regression technique we provide unique evidence on three questions concerning the consumption behaviour of UK households. First, what percentage of households display excess sensitivity to income? Second, what affects the likelihood of being in that group? Third, is there a collateral channel from house prices to consumption? We find 20%-40% of households display excess sensitivity. These households may be liquidity constrained or saving for other precautionary reasons. This is found to be more likely for those without liquid assets, with negative home equity, the young, unmarried, non-white and the degree-educated. According to the 'collateral channel', house prices influence consumption by allowing households that would otherwise be liquidity constrained to borrow on more attractive terms. A key implication of that view is that capital gains on housing should influence the consumption of the liquidity constrained/precautionary saving households, but not other households. We test that implication for the first time and find direct evidence in support."--Bank of England web site.
Notes: Title from PDF file as viewed on Oct. 16, 2006

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