Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board , Washington , D . C . Homeowner Balance Sheets and Monetary Policy

Content Provider	Semantic Scholar
Author	Aladangady, Aditya
Copyright Year	2014
Abstract	This paper empirically identifies an important channel through which monetary policy affects consumer spending: homeowner balance sheets. A monetary loosening increases home values, thereby strengthening homeowner balance sheets and stimulating household spending due to a combination of collateral and wealth effects. The magnitude of these effects on a given household depends on local housing market characteristics such as local geography and regulation. Cities with the largest geographic and regulatory barriers to new construction see 3-4% responses in real house prices compared with unconstrained, elastic-supply cities where construction holds prices in check. Using non-public geocoded microdata from the Consumer Expenditures Survey, house price and consumption responses are compared across areas differing in local land availability and zoning laws to identify a marginal propensity to consume out of housing of 0.07. Homeowners with debt service ratios in the highest quartile have MPCs as high as 0.14 compared with negligible responses for those with low debt service ratios. This indicates a strong role for collateral effects, as opposed to pure wealth effects, in driving the relationship between home values and spending. I discuss the implications of these results for the aggregate effects and regional heterogeneity in responses to monetary shocks. ∗Contact: aditya.aladangady@frb.gov The latest version of this paper can be found at https://sites.google.com/site/aladangady/. I am grateful for the helpful comments and discussion provided by Matthew Shapiro, Mel Stephens, Amiyatosh Purnanandam, Frank Stafford, Lutz Killian, and Yuriy Gorodnichenko. I would also like to thank Ryan Pfirrmann-Powell at the BLS for facilitating access to restricted data and answering questions about the Consumer Expenditure Survey. I also thank Ryan Nunn, Gabe Ehrlich, Cynthia Doniger, Desmond Toohey, Lasse Brune, and the seminar participants at the University of Michigan, NBER Summer Institute, Bureau of Labor Statistics, and FRB-SF/UCLA Housing and Monetary Policy Conference for their helpful comments regarding this paper. All remaining mistakes are my own. †This research was conducted with restricted access to Bureau of Labor Statistics (BLS) data. The views expressed here do not necessarily reflect the views of either the Federal Reserve Board or the BLS.
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Alternate Webpage(s)	https://www.federalreserve.gov/econresdata/feds/2014/files/201498pap.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article