MPCs of ABCs: The housing wealth effect for affluent boomers with credit

Abstract

This paper combines exogenous variation in house prices with anonymized individual-level expenditures data to identify a causal channel from housing wealth to consumption. We show that the Sandy Hook school shooting provided a large negative exogenous shock to local housing which lowered credit card spending by about 4.2 cents for each $1 fall in house prices: rescaled this translates to an annual marginal propensity to consume (MPC) of about 9 cents on the dollar. These consumption sensitivities are driven entirely by creditworthy middle-aged consumers, with those closest to the retirement threshold reacting the strongest.