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

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

Document Type: Research Article


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

Publication date: June 1, 2012

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