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Title: Estimating Consumption Substitution between Housing and Non-Housing Goods using Macro Data

Citation Type: Miscellaneous

Publication Year: 2013

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Abstract: The static elasticity of substitution (SES) between housing and non-housing consumption is important not only in understanding housing demand, but also in asset pricing because housing consumption influences the marginal utility of numeraire consumption. Previous estimates of the elasticity are low when micro data are used but high when macro data are used. We use aggregate time-series data to estimate SES by allowing for non-homotheticity in preferences. We obtain lower estimates of SES ranging from 0.4 to 0.9 when we allow for non-homotheticity than when we maintain homotheticity assumption. Homotheticity is rejected in the way that consumption share of housing decreases as income grows and as income is derived more from employment than from investments. We also obtain low IES ranging from 0.05 to 0.14. JEL classification: G12, D12, R21, R30.

Url: https://pdfs.semanticscholar.org/ddd9/d8c04adf0d83702123a417db8cb5ada41324.pdf

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Authors: Davidoff, Thomas; Yoshida, Jiro

Publisher: University of British Columbia

Data Collections: IPUMS USA

Topics: Housing and Segregation

Countries: United States