Multi-Horizon Financial and Housing Wealth Effects across the U.S. States

Yener Coskun,Christos Bouras,Rangan Gupta,Mark E Wohar

doi:10.2139/ssrn.3441677

Yener Coskun, Christos Bouras + Show 2 more

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https://doi.org/10.2139/ssrn.3441677

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Abstract

Multi-horizon non-causality testing (Dufour et al., 2006) and multi-horizon causality measurement (Dufour and Taamouti, 2010). We find in both that housing wealth has a more statistically significant, persistent, and widespread impacts than financial wealth on state/aggregate levels. We also find that state-level housing/financial wealth effects show heterogenity accross the U.S. Moreover, except the result of multi-horizon causality measure for financial wealth, the evidence show the presence of financial/housing wealth effects for consumption in longer horizons. State level evidence suggests that state-level policies may specifically utilize the housing market to support consumption and growth.

Highlights

Evaluating the dynamics of the wealth effect on the U.S economy has been growing in importance in the wake of the recent housing bubble
The goal of this paper is to better understand the wealth effect-induced household consumption behaviors in the U.S states, in particular: (i) whether state-level wealth effect dynamics in the U.S differ from aggregate level dynamics, (ii) whether wealth effect upon consumption occurs at different time horizons at the state level, (iii) which wealth effect component is more intense in the short-run and long-run, (iv) whether the results are robust to different model specifications, and (v) whether the U.S states can be classified with respect to which wealth effect is more dominant based on some criteria such as short-/long-term persistency and magnitude of coefficient value of a wealth effect component
The housing and financial wealth effects on consumption have been widely analyzed for the U.S economy due to housing and stock market-centered policies since the mid1990s

Summary

Introduction

Evaluating the dynamics of the wealth effect on the U.S economy has been growing in importance in the wake of the recent housing bubble. This paper uses an expanded dataset with regional data to reinvestigate the classic research problem of wealth effect, or the link between wealth and consumption [7] in the U.S In this respect, except for [8], no comprehensive systemic analysis has been conducted using data for the U.S economy at the state-level. An analysis of the causality linkages between wealth and consumption across different prediction horizons and states provides a micro-level fresh perspective to the empirical literature

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