Credit, Housing Collateral And Consumption: Evidence From The UK, Japan And The U.S.
The consumption behaviour of UK, U.S. and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for UK and U.S. but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the UK and U.S. as mortgage down-payment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans.