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House Prices, Wealth and Consumption: New Evidence from Australia and Canada

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Over the past two decades, a number of countries have experienced appreciation in house prices at the same time that aggregate consumption has increased. This paper tests alternative hypotheses for this phenomenon by using repeated household surveys from Australia and Canada to identify the transmission mechanism that links consumption and household wealth. The empirical analysis suggests that neither a direct wealth effect nor a common causal factor likely accounts for the observed correlation between wealth and consumption in these two countries. Rather, indirect factors such as collateral effects arising from relaxation of credit constraints are a more likely explanation.
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Keywords: D12; D91; E21; collateral effects; common causality; house prices; household consumption; wealth effects

Document Type: Research Article

Publication date: March 1, 2016

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