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Federal Reserve Bank of Dallas
Working Papers
Credit, housing collateral and consumption: evidence from the UK, Japan and the US
Janine Aron
John V. Duca
John N. Muellbauer
Keiko Murata
Anthony Murphy
Abstract

The consumption behaviour of U.K., U.S. and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for U.K. and U.S. but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the U.K. and U.S. as mortgage downpayment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is roughly similar in the U.S. and U.K., while land prices in Japan still have a negative effect on consumer spending. Together with evidence for negative real interest rate effects in the U.K. and U.S. and positive ones in Japan, this suggests important differences in the transmission of monetary and credit shocks between Japan and the U.S., U.K. and other credit-liberalized economies.


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Janine Aron & John V. Duca & John N. Muellbauer & Keiko Murata & Anthony Murphy, Credit, housing collateral and consumption: evidence from the UK, Japan and the US, Federal Reserve Bank of Dallas, Working Papers 1002, 2010.
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Note: Published as: Aron, Janine, John V. Duca, John Muellbauer, Keiko Murata and Anthony Murphy (2012), "Credit, Housing Collateral and Consumption: Evidence from the U.K., Japan and the U.S.," Review of Income and Wealth 58 (3): 397-423.
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Subject headings:
Keywords: Households - Economic aspects; Consumption (Economics); Credit; Business cycles; Financial markets; Economic conditions - United States; Economic conditions - Japan; Economic conditions - Great Britain
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