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The Impact Of Housing Prices On Aggregate Consumption: Evidence From An East Asian City-State, Sock-Yong Phang
The Impact Of Housing Prices On Aggregate Consumption: Evidence From An East Asian City-State, Sock-Yong Phang
Research Collection School Of Economics
Using aggregate consumption data for Singapore, this paper rejects the life-cycle/permanent income and myopia hypotheses as explanations for aggregate consumption behavior. We confirm the presence of liquidity constraints from the asymmetric reaction of consumption to income increases vis-a-vis income declines. When we allow for asymmetric response, anticipated house price increases appear to have a dampening effect on aggregate consumption while declines in expected house price growth also had a negative effect on consumption, although the results are statistically insignificant. There is no evidence that the housing price increases have produced either wealth or collateral enhancement effects on consumption.