The Impact of Housing Prices on Aggregate Consumption: Evidence from an East Asian City-State

• Main Author: PHANG, Sock-Yong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Housing wealth effects; consumption; Singapore; liquidity constraints; collateral enhancement; Asian Studies; Public Economics; Real Estate
• Online Access: https://ink.library.smu.edu.sg/soe_research/1195; https://ink.library.smu.edu.sg/context/soe_research/article/2194/viewcontent/JUE20021.pdf
• Institution: Singapore Management University

Using aggregate consumption data for Singapore, this paper rejects the life-cycle/permanent income and myopia hypotheses as explanations for aggregate consumption behavior. We confirm the presence of liquidity constraints from the asymmetric reaction of consumption to income increases vis-a-vis income declines. When we allow for asymmetric response, anticipated house price increases appear to have a dampening effect on aggregate consumption while declines in expected house price growth also had a negative effect on consumption, although the results are statistically insignificant. There is no evidence that the housing price increases have produced either wealth or collateral enhancement effects on consumption.