1. Discussion: Consumption Responses to House Price Heterogeneity
Author: James Graham
Discussant: Karsten Chipeniuk

2. Motivation Observations: Questions:
Households face uncertainty in house prices.
Intertemporally...
…but also geographically.
Consumption responds to house prices.
Questions:
What does the geographical component of house prices look like?
How does consumption respond to regional house price fluctuations?

3. Data and Empirical Results
Property Transaction Data (ZTRAX).
Rich in transaction details.
Approximately 20 Years.
Several US states and counties.
Log property prices ~ Observables + Nested geographical errors.
Consumption Data (Nielsen Consumer Panel).
Household reported purchases.
Approximately 11 Years.
Contains city/zip code information.
Positive elasticity of consumption to aggregate and zip code prices.

4. Partial Equilibrium OLG Model
Households:
Receive income.
Consume nondurables and housing.
Rent housing or finance ownership through mortgages.
Uncertainty:
Exogenous house prices ~ city, zip code components.
Neighbourhood moving shocks.
House Price Elasticity of Consumption:
On average, negative for the young, positive for the old.
Likewise for low versus high income.
Zip code price elasticity typically higher than city elasticity.

5. Comments Why is the unobserved error components model used?
House location is observable.
Why not add it in the regression instead?
What fundamentally drives the different house price components?
What are we getting from the consumption elasticity regression?
Elasticities varying across ages, incomes, leverage?
Endogeneity concerns.
Intuition for relative wealth effects of price components…
Does not explain the even larger effect of aggregate level prices.
Why is the city price component insignificant by itself?

6. Comments
How do the empirical results filter into the structural model?
Price shocks abstract away from observables.
Calibration of moving shocks?
Model elasticities differ from estimated elasticities.
What are we trying to understand in the model?
Regional elasticities? Strong assumptions on moving.
Complex mortgage structure, but leverage is a footnote.
Policy implications?
How does prudential policy differentially impact neighbourhoods or cities.
Is there a role for region targeted policy?