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
How Effective are Universal Payments for Raising Consumption? Evidence from a Natural Experiment with Seungjun Baek (Kyung Hee U), Seongeun Kim (Sejong U), and Tae-hwan Rhee (Sejong U)
Empirical Economics, November 2023, Vol.65(5), 2181-2211
Empirical Economics, November 2023, Vol.65(5), 2181-2211
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.
Sentiment Effect of House Prices on Household Consumption Expenditure: Evidence from Housing Regulation During Pandemic
Submitted
We investigate the sentiment effect of house prices on household consumption expenditure by utilizing the ideal natural experiment setup in South Korea with large-scale household-level data from the Korea Credit Bureau. Specifically, we use the government regulations on a housing market that would directly affect expectations or sentiment on house prices as an identification strategy. In mid-June 2020, the Korean government designated Daejeon, one of the metropolitan cities in South Korea, as the regulated area. As the neighboring Chungnam province was not designated as the regulated region, we employ a difference-in-difference approach to compare household consumption in two regions within short periods before and after the regulation. We find that the sentiment on changes in house prices causes positive changes in household consumption. Overall, monthly consumption per person increased by approximately 50 thousand KRW (or 40 USD) immediately after the regulation. Also, our results provide empirical evidence of the sentiment effect of house prices by considering heterogeneity in household groups and estimating the evolution of treatment effects. Homeowners holding outstanding mortgages with relatively expensive houses tend to present substantial sentiment impacts immediately due to the sentimental wealth effect. For renters, responses tend to be delayed by 1-2 months because it takes time to form particular sentiments.
Submitted
We investigate the sentiment effect of house prices on household consumption expenditure by utilizing the ideal natural experiment setup in South Korea with large-scale household-level data from the Korea Credit Bureau. Specifically, we use the government regulations on a housing market that would directly affect expectations or sentiment on house prices as an identification strategy. In mid-June 2020, the Korean government designated Daejeon, one of the metropolitan cities in South Korea, as the regulated area. As the neighboring Chungnam province was not designated as the regulated region, we employ a difference-in-difference approach to compare household consumption in two regions within short periods before and after the regulation. We find that the sentiment on changes in house prices causes positive changes in household consumption. Overall, monthly consumption per person increased by approximately 50 thousand KRW (or 40 USD) immediately after the regulation. Also, our results provide empirical evidence of the sentiment effect of house prices by considering heterogeneity in household groups and estimating the evolution of treatment effects. Homeowners holding outstanding mortgages with relatively expensive houses tend to present substantial sentiment impacts immediately due to the sentimental wealth effect. For renters, responses tend to be delayed by 1-2 months because it takes time to form particular sentiments.
Work in Progress
Analytical Comparison of Business Cycles in Small Open Economy Models with Complete and Incomplete Asset Markets with Myunghyun Kim (SKKU)
Can Monetary Policy Influence on Household Consumption through Housing Prices?: Empirical Analysis on Homeowner Balance Sheet Channel with Yejin Kim (Yonsei U)
Unpleasant Leisure Time for Consumption with Myunghyun Kim (SKKU)