(2005) estimate a marginal propensity to consume (MPC) out of wealth from aggregate US data. Their results suggest that the MPC appears not to have statistically changed since the beginning of the 1970s. They find, however, a big increase in the MPC at the end of the 1960s.

In this paper, we provide empirical evidence of the strengthening of impact of house prices on the US macro-variables. We proceed in two steps. First, we test the stability of the house prices macro-link in the US during the last 50 years. A recursive Vector Autoregressive (VAR) model including gross domestic product (GDP) or private consumption, interest rates and house prices, is chosen to account for the house prices macro-relationship. The methodology developed in Qu and Perron (2007) is applied to identify breaks in our multivariate system. In this method, the dates and the number of breaks are entirely determined by the algorithm, rather than being imposed ex-ante, like most of the methods used in the time series literature.<sup>3</sup> Thus, this methodology does not require to set _a priori_ the mid-80s -a period systematically found as a structural break in the literature on the “Great Moderation”- as a unique break-point in the house prices macro-link. Indeed, a rupture in this relationship could have occurred as early as the end of the 1960s, when the privatization of the Federal National Mortgage Association (“Fannie Mae”) in 1968 and the creation of the Federal Home Loan Mortgage Corporation (“Freddie Mac”) in 1970 established the foundation of what would become the renovated US mortgage market. A break might also be found as recently as the early 2000s, where a deepening of markets for securitized contracts and derivatives occurred and subprime mortgage loans developed at a very strong pace. Furthermore, the method allows us to consider the fact that the reduction in credit constraints has been a gradual process and that the modification in the house prices macro-link did not occur all at once. The implication of this hypothesis is that the afore proposed break-dates are not exclusive and that more than one break could exist in the link. In the second step, we use the break-points estimated to split the sample in different segments and, on each subsample, multivariate time series analysis, including impulse-responses and Granger causality tests are performed.

Our results can be summarized as follows: the application of Qu and Perron’s methodology in a VAR with linear restrictions concludes that there are two breakpoints in the house prices macro-relationship when GDP is introduced in the VAR specification: one at the end of the 1960s and the second in the mid-1980s, the latest rupture being the strongest among the two break-dates. We also find that there is only one structural break in the link when private consumption is included in the multivariate system, in the mid-1980s. Time series analysis across subsamples finds that the overall impact of house prices, not only on private consumption but also on economic activity has intensified since the mid-1980s. Our results give support to the hypothesis that the modification of the real estate market in the mid-1980s seems to have been a key factor in the strengthening of the effect of house prices on the macroeconomy.<sup>4</sup>

> 3Bai and Perron (1998) also develop a methodology to detect multiple breaks occurring at unknown dates, but the method only considers the case of a single linear equation.

> 4Generally, the “Great Moderation” literature finds reduced responses of GDP to different