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Household Finance and Consumer Behavior

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Washington B
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Richard Green, University of Southern California

International Credit Supply Shocks

Alessandro Rebucci
,
Johns Hopkins University

Abstract

House prices and exchange rates can potentially amplify the expansionary effects of capital inflows by inflating the value of collateral. We first document that during a boom in capital inflows real exchange rates, house prices and equity prices appreciate; the current account deteriorates; and consumption and GDP expand; while in a bust these dynamics reverse sharply. Next we set up a model of collateralized borrowing in foreign currency with international financial intermediation in which a shock to the international supply of credit is expansionary. In this environment, we illustrate how exchange rate and house price appreciations may contribute to fueling the boom by inflating the value of collateral. We finally show that an identified change to the international supply of credit in a Panel VAR for 50 advanced and emerging countries displays a similar transmission. Moreover, we show that the intensity of the consumption response to such a shock differs significantly across countries and it is associated with country characteristics of both the housing finance system and the monetary policy framework like in our model.

Does Collateral Value Affect Asset Prices? Evidence From a Natural Experiment in Texas

Albert Zevelev
,
Baruch College

Abstract

This paper identifies the impact of collateral value on house prices, exploiting law changes in Texas which legalized home equity loans in 1998. The impact of this credit expansion was positive, heterogeneous and direct. The laws increased Texas house prices 3.8%; this is price-based evidence that households are credit constrained. Prices rose more in locations with inelastic supply, higher prelaw house prices, population, income and employment. These estimates reveal that wealthier households value the option to pledge their home as collateral more strongly. Further estimates indicate that the effect occurred directly, as variables related to house prices were unaffected.

Home Equity and the Timing of Claiming Social Security Retirement Income

Amanda Ross
,
University of Alabama
Naqun Huang
,
Singapore Management University
Jing Li
,
Singapore Management University

Abstract

This paper examines how changes in house prices affect the timing of when eligible individuals decide to start receiving Social Security Retirement Income (SSRI). As changes in the price of housing and SSRI withdrawal decisions are likely to be correlated with unobserved local demand shocks, we employ an instrumental variables strategy using the land supply elasticity of an MSA interacted with changes in the national housing price index as an instrument for the value of a home. We find that an increase in the value of a home causes elderly individuals to delay SSRI claiming once they are eligible during the housing boom period, but we do not find a statistically significant impact on the claim decision during the bust period. Our findings highlight the potential channel of cashing out home equity in replace of receiving SSRI early for seniors to finance retirement during the housing boom period.
Discussant(s)
Stephen Malpezzi
,
University of Wisconsin-Madison
Hyojung Lee
,
University of Southern California
Paul Ernesto Carrillo
,
George Washington University
Jung Hyun Choi
,
University of Southern California
JEL Classifications
  • R2 - Household Analysis
  • D1 - Household Behavior and Family Economics