Seminar: "The Housing Wealth Effect: Identification after a Tragedy" by Prof. Niloy Bose, Professor, Department of Economics, Virginia Tech, USA
Identifying a causal channel from changes in housing wealth to consumption is challenging. This is rooted in the difficulties in finding truly exogenous sources of variation in house prices, as well as onerous individual-level data requirements. This paper offers a framework that meets both challenges. Central to our research design is the tragic school shooting in Newtown on December 14, 2012, which provided a large negative shock to the local real estate market, the magnitude of which varied discontinuously at the boundary of the Sandy Hook Elementary School attendance zone. We combine this information on the exogenous change in housing values with individual-level credit card expenditure data to identify the magnitude of the wealth-effect from housing to consumption. Our results suggest that the marginal propensity to consume from a $1 change in housing wealth is about 10-14 cents. However, household demographics are key to understanding the magnitude of these effects. We find no evidence that changes in housing wealth affect the behavior of young (18-30) or old (65+) consumers; instead, the effect is driven entirely by the 30-65 cohort. Consistent with these results, we find that lower income households, who are more-often renters, are short in housing, while higher-income households react positively to changes in housing wealth.
Niloy Bose a holds a Ph.D. in economics from Virginia Tech., a post-graduate degree from JNU, and a B.A. from Jadavpur University, Kolkata. He taught at the University of Manchester and the University of Wisconsin-Milwaukee before joining Virginia Tech. in 2018. His research focuses on macroeconomics and monetary Economics, economic development and growth theory, application of the theory of private information and applied microeconomics. He served as a Program Director and as a Member of Advisory Council at the National Science Foundation. He has been a visiting scholar at the Federal Reserve Bank (US), a research fellow at the Center for Growth and Business Cycle Research and a Senior Hallsworth Fellow at the University of Manchester. He is a recipient of the research grants from National Science Foundation and Economic and Social Research Council (UK).