Can the Consumption-Wealth Ratio Predict Housing Returns? Evidence from OECD Countries
Real Estate Economics, Forthcoming
Posted: 20 Mar 2015
Date Written: February 12, 2015
Abstract
We use a representative consumer model to analyse the relation between the transitory deviations of consumption from its common trend with aggregate wealth and labour income, cay, and the housing risk premium. The evidence based on data for 15 OECD countries shows that, if financial and housing assets are seen as complements, investors will temporarily allow consumption to rise when they expect a rise in future housing returns. By contrast, if housing assets are treated as substitutes for financial assets, consumption will be reduced.
Keywords: consumption-wealth ratio, housing returns
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