Using a sample of developed and developing nations (including China and Hong Kong), this study examines the financial market and housing wealth effects on consumption. Housing performs the dual functions as both a commodity providing a flow of housing services and an investment providing a flow of capital income. With an empirical framework based on the permanent income hypothesis, this study's findings suggest that a rise in housing price has both a positive wealth effect and a negative price effect on consumption. While the positive wealth effect is caused by an increase in capital income from housing investment, the negative price effect is caused by an increase in the cost of consuming housing services. Moreover, the sensitivity of consumption to unanticipated changes in housing price is related to the level of financial and institutional development.
The work described in this paper was supported by a grant from Hong Kong Polytechnic University (Project No. G-U129). An earlier version of this paper was presented at the 14th Pacific Rim Real Estate Society Conference 2008.
Fung, M.K. and Cheng, A.C.S. (2021), "The Wealth Effects of Housing and Stock Markets on Consumption: Evidence across Nations Including China and Hong Kong", Fung, M.K. and Sergi, B.S. (Ed.) Modeling Economic Growth in Contemporary Hong Kong (Entrepreneurship and Global Economic Growth), Emerald Publishing Limited, pp. 1-9. https://doi.org/10.1108/978-1-83909-936-620211003Download as .RIS
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