Housing wealth effect: Evidence from threshold estimation

This paper attempts to estimate the housing wealth effect of households in different income levels. To endogenously split the sample by income levels, we use the threshold estimation technique, developed in Hansen (1999), for non-dynamic panels with individual-specific fixed effects. The data are drawn from the Panel Study of Income Dynamics (PSID), during the waves of 2001, 2003, and 2005. We find two significant threshold income levels of $74,046, and $501,000. Housing wealth has a significant effect on consumption with a coefficient of 0.010602, if income is below $74, 046. It is also significant and equals 0.028224 if income is between $74,046 and $501,000. For incomes above $501,000, the coefficient is not statistically significant. (C) 2013 Elsevier Inc. All rights reserved.