What Do 12 Billion Card Transactions Say About House Prices and Consumption?

Co-authors: Jesper Böjeryd, Magnus Gulbrandsen, Ragnar Juelsrud, and Kasper Roszbach

Changes in house prices can drive consumption, investment and the economy at large. Using close to the universe of debit card and electronic invoice payment data linked with relevant administrative background data for Norway, we estimate the dynamic response of consumption to a regional house price shock generated by the 2014-15 oil price decline. We isolate the effect of housing wealth by exploiting regional variation in exposure to the oil sector and studying government workers who face no change in unemployment or income risk and have stable and centrally determined wages. While a $1 drop in housing wealth causes an average decline in expenditures of $0.02 over a 24-month period, we find substantial heterogeneity across consumption components and population groups. Durable goods such as cars and furnishing respond strongest while semi-durables such as clothing are less affected and essential goods such as food and beverages do not react. Consistent with housing playing a role as collateral, the response of consumption increases with household leverage and decreases in liquidity and age. Our findings provide new evidence on the dynamics and the mechanisms through which house price shocks translate to changes in consumption. Knut Are Aastveit is the Deputy Director of Norges Bank Research. He is also an Adjunct Professor affiliated with CAMP at BI Norwegian Business School and serves as an associate editor of the Journal of Applied Econometrics. His research focus on empirical macroeconomics and time series. Special interests include forecasting, Bayesian econometrics, commodity prices, business cycles, housing markets and monetary policy.