Consumption and housing wealth breakdown of the effect of a rise in interest rates

Authors: Navarro, Manuel Leon¹; de Frutos, Rafael Flores²

Source: Applied Economics, Volume 44, Number 16, 1 June 2012 , pp. 2091-2110(20)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

In this article the effect on consumption of a fall in housing wealth and housing prices, resulting from an increase in interest rates is estimated. With the help of a dynamic multiequation, macroeconomic model, the consumer response function is broken down into two parts: a direct response related to a rise in the cost of credit and another indirect one related to the deterioration of the property market. Estimation of the theoretical model is done by means of a Vectorial Error-Correction (VEC) model.

Keywords: vectorial error-correction model; wealth effect; housing prices; monetary policy; C32; C51; E21

Document Type: Research article

DOI: http://dx.doi.org/10.1080/00036846.2011.558484

Affiliations: 1: Centro Universitario Cardenal Cisneros, C/General Diaz Porlier 5828006 Madrid, Spain 2: CUNEF, C/ Serrano Anguita8 - 28004 Madrid, Spain

Publication date: 2012-06-01

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