Publications
A New Angle on Excess Consumption Volatility in Emerging Countries: Does House Price Matter?
Journal of International Money and Finance, June 2022, Vol. 124
Journal of International Money and Finance, June 2022, Vol. 124
Working Papers
Housing and Consumption Volatility
Submitted
Business cycles in emerging economies exhibit both greater volatility of housing prices and relative consumption compared to business cycles in rich countries. This paper provides evidence of a positive relationship between housing price and relative consumption volatility across countries, and explores that linkage by building a real business cycle model of a small open economy with both housing and rental markets. While housing consumption, as measured through rental prices, is a non-negligible portion of total consumption, the role of the rental market has largely been overlooked in studies of consumption volatility. By explicitly modelling separate housing and rental sectors, this paper is able to explain some new stylized facts that emerge when housing and non-housing consumption are disaggregated: first, housing consumption is more volatile than non-housing consumption in emerging countries; and, second, even after controlling for housing consumption volatility, non-housing consumption in emerging economies is still more volatile than that in rich countries. Simulation results suggest that cross-country variation in the volatility of shocks to credit prices and availability is a driving force in generating the observed relationship between house price and relative consumption volatility. The model also suggests that a financial friction stemming from constraints in housing-collateralized credit can explain excess non-housing consumption volatility in emerging countries, while rental market frictions may account for the greater housing consumption volatility observed.
Submitted
Business cycles in emerging economies exhibit both greater volatility of housing prices and relative consumption compared to business cycles in rich countries. This paper provides evidence of a positive relationship between housing price and relative consumption volatility across countries, and explores that linkage by building a real business cycle model of a small open economy with both housing and rental markets. While housing consumption, as measured through rental prices, is a non-negligible portion of total consumption, the role of the rental market has largely been overlooked in studies of consumption volatility. By explicitly modelling separate housing and rental sectors, this paper is able to explain some new stylized facts that emerge when housing and non-housing consumption are disaggregated: first, housing consumption is more volatile than non-housing consumption in emerging countries; and, second, even after controlling for housing consumption volatility, non-housing consumption in emerging economies is still more volatile than that in rich countries. Simulation results suggest that cross-country variation in the volatility of shocks to credit prices and availability is a driving force in generating the observed relationship between house price and relative consumption volatility. The model also suggests that a financial friction stemming from constraints in housing-collateralized credit can explain excess non-housing consumption volatility in emerging countries, while rental market frictions may account for the greater housing consumption volatility observed.
How Effective are Universal Payments for Raising Consumption? Evidence from a Natural Experiment with Seungjun Baek (Sejong U), Seongeun Kim (Sejong U), and Tae-hwan Rhee (Sejong U)
Empirical Economics, conditionally accepted, *SSRN Link
We investigate the impact of the universal stimulus payments (100-350 thousand KRW per person) distributed by the largest Korean province of Gyeonggi under the COVID-19 pandemic on household consumption using large-scale credit and debit card data from the Korea Credit Bureau. As the neighboring Incheon metropolitan city did not distribute stimulus payments, we employ a difference-in-difference approach and find that the stimulus payments increased monthly consumption per person by approximately 30 thousand KRW within the first 20 days. The overall MPC of the payments was approximately 0.40 for single families. The MPC decreased from 0.58 to 0.36 as the transfer size increased from 100-150 to 300-350 thousand KRW. We also find that universal payments had a very heterogeneous effect on different groups of people. The MPC for liquidity-constrained households, which account for 8% of residents, was close to one, but the MPCs of the other household groups were not significantly different from zero. The unconditional quantile treatment effect estimates reveal that there was a positive and significant increase in monthly consumption only on the lower part of the distribution below the median. Our results show that a more targeted approach may more efficiently achieve the policy goal of boosting aggregate demand.
Empirical Economics, conditionally accepted, *SSRN Link
We investigate the impact of the universal stimulus payments (100-350 thousand KRW per person) distributed by the largest Korean province of Gyeonggi under the COVID-19 pandemic on household consumption using large-scale credit and debit card data from the Korea Credit Bureau. As the neighboring Incheon metropolitan city did not distribute stimulus payments, we employ a difference-in-difference approach and find that the stimulus payments increased monthly consumption per person by approximately 30 thousand KRW within the first 20 days. The overall MPC of the payments was approximately 0.40 for single families. The MPC decreased from 0.58 to 0.36 as the transfer size increased from 100-150 to 300-350 thousand KRW. We also find that universal payments had a very heterogeneous effect on different groups of people. The MPC for liquidity-constrained households, which account for 8% of residents, was close to one, but the MPCs of the other household groups were not significantly different from zero. The unconditional quantile treatment effect estimates reveal that there was a positive and significant increase in monthly consumption only on the lower part of the distribution below the median. Our results show that a more targeted approach may more efficiently achieve the policy goal of boosting aggregate demand.
Sentiment Effect of House Prices on Household Consumption Expenditure: Evidence from Housing Regulation in South Korea
Draft coming soon
Draft coming soon
Work in Progress
Can Monetary Policy Influence on Household Consumption through Housing Prices?: Empirical Analysis on Homeowner Balance Sheet Channel with Yejin Kim (Bank of Korea)