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Research Paper CNB Working Paper Series 12/2006

Housing wealth and household indebtedness: is there a household 'financial accelerator'?

Authors

Publication date

2006

Abstract

The 'financial accelerator' model when applied to households states that shocks to household balance sheets (primarily changes in house prices) amplify fluctuations in consumer spending by tightening or relaxing collateral constraints on borrowing. We construct an alternative model where households also have access to unsecured debt, and examine the effect of shocks to house prices on debt-financed consumption in this augmented setting. Our alternative model reduces the amplitude of fluctuations in debt-financed consumer spending arising from fluctuations in household asset values. The paper tests the applicability of the two models using panel data for the United Kingdom that allow us to measure collateral constraints, changes in asset values and financial indebtedness at the household level.

Subjects

Household Economics, Debt: Indebtedness, and Housing Market

Links

http://ideas.repec.org/p/cnb/wpaper/2006-12.html

Notes

working paper

#511579


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