Housing Habits and Their Implications for Life-cycle Consumption and Investment

Holger Kraft, Claus Munk, Sebastian Wagner

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.
Original languageEnglish
JournalReview of Finance
Volume22
Issue number5
Pages (from-to)1737-1762
Number of pages26
ISSN1572-3097
DOIs
Publication statusPublished - Aug 2018

Bibliographical note

Published online: 13. October 2017

Keywords

  • Household decisions
  • Stock investments
  • Housing expenditure share
  • Consumption hump
  • Habit formation

Cite this

Kraft, Holger ; Munk, Claus ; Wagner, Sebastian. / Housing Habits and Their Implications for Life-cycle Consumption and Investment. In: Review of Finance. 2018 ; Vol. 22, No. 5. pp. 1737-1762.
@article{e6554f24fa21440c927e6d17e2b73daa,
title = "Housing Habits and Their Implications for Life-cycle Consumption and Investment",
abstract = "We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.",
keywords = "Household decisions, Stock investments, Housing expenditure share, Consumption hump, Habit formation, Household decisions, Stock investments, Housing expenditure share, Consumption hump, Habit formation",
author = "Holger Kraft and Claus Munk and Sebastian Wagner",
note = "Published online: 13. October 2017",
year = "2018",
month = "8",
doi = "10.1093/rof/rfx048",
language = "English",
volume = "22",
pages = "1737--1762",
journal = "Review of Finance",
issn = "1572-3097",
publisher = "Oxford University Press",
number = "5",

}

Housing Habits and Their Implications for Life-cycle Consumption and Investment. / Kraft, Holger; Munk, Claus; Wagner, Sebastian.

In: Review of Finance, Vol. 22, No. 5, 08.2018, p. 1737-1762.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Housing Habits and Their Implications for Life-cycle Consumption and Investment

AU - Kraft, Holger

AU - Munk, Claus

AU - Wagner, Sebastian

N1 - Published online: 13. October 2017

PY - 2018/8

Y1 - 2018/8

N2 - We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.

AB - We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.

KW - Household decisions

KW - Stock investments

KW - Housing expenditure share

KW - Consumption hump

KW - Habit formation

KW - Household decisions

KW - Stock investments

KW - Housing expenditure share

KW - Consumption hump

KW - Habit formation

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=111082135093056&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1093/rof/rfx048

DO - 10.1093/rof/rfx048

M3 - Journal article

VL - 22

SP - 1737

EP - 1762

JO - Review of Finance

JF - Review of Finance

SN - 1572-3097

IS - 5

ER -