Hostname: page-component-7479d7b7d-jwnkl Total loading time: 0 Render date: 2024-07-11T03:32:50.238Z Has data issue: false hasContentIssue false
  • English
  • Français

Consumption, Housing Wealth and Financial Crises

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
Simon Kirby
Ray Barrell
Affiliation:
National Institute of Economic and Social Research
Simon Kirby
Affiliation:
National Institute of Economic and Social Research
Get access Rights & Permissions [Opens in a new window]

Extract

This note reviews recent Institute work on the factors that might affect the future evolution of consumption. Drawing on Barrell and Davis (2007), it discusses the evidence for the effects of housing wealth on consumption, and shows that there has been strong and well supported evidence for a link for some time. This evidence suggests that a fall in house prices will cause consumption growth to slow. The discussion also covers evidence from Barrell, Davis and Pomerantz (2006) on the effects of financial crises on consumption behaviour. They suggest that there are large and significant negative effects on consumption during banking crises that are over and above the effects on consumption of the crisis-induced changes in income and wealth. Much of this work is embedded in our structural model, NiGEM, and it is possible to estimate the effects of house price declines and financial crises on consumption and income using the model. The note also gives a set of ready reckoners for the impacts of house price declines on output and of a given associated fall in the level of housing wealth on the level of consumption.

Type
Articles
Information
National Institute Economic Review , Volume 205 , July 2008 , pp. 57 - 60
Copyright
Copyright © 2008 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

∗

We would like to thank Sylvia Gottschalk, Tatiana Fic, Iana Liadze and Ali Orazgani for their comments. Errors remain ours.

References

Al-Eyd, A., Barrell, R. and Holland, D. (2006), ‘The role of financial markets' openness in the transmission of shocks in Europe’, National Institute Discussion Paper no. 271.Google Scholar
Barrell, R. and Davis, E.P. (2007), ‘Financial liberalisation, consumption and wealth effects in 7 OECD countries’, Scottish Journal of Political Economy, May.CrossRefGoogle Scholar
Barrell, R., Davis, E.P. and Pomerantz, O. (2006), ‘Costs of financial instability, household-sector balance sheets and consumption’, Journal of Financial Stability, 2, 2, pp. 194–216.CrossRefGoogle Scholar
Barrell, R. and Holland, D. (2007), ‘Banking crises and economic growth’, National Institute Economic Review, 202, pp. 34–41. 1.CrossRefGoogle Scholar
Barrell, R. and Hurst, I. (2008), ‘Financial crises and the prospects for recession’, National Institute Economic Review, 204, pp. 33- 8.CrossRefGoogle Scholar
Barrell, R., Hurst, I. and Kirby, S. (2008), ‘financial crises, regulation and growth’, National Institute Discussion Paper no. 313.CrossRefGoogle Scholar
Benito, A., Thompson, J., Waldron, M. and Wood, R. (2006), ‘House prices and consumer spending’, Bank of England Quarterly Bulletin, Summer, pp. 142–54.Google Scholar