John Gathergood | University of Nottingham (original) (raw)

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Papers by John Gathergood

Movements in house prices and consumer spending are closely correlated in many developed nations.... more Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is in any way causal arising from either wealth effects or collateral effects. This paper uses a unique survey question on self-reported responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back their spending as a direct response to house price falls. Econometric analysis suggests that among homeowners this response is driven by collateral effects. However, perhaps surprisingly, one third of those reporting they would cut back their consumption are renters. We argue this reaction is also driven by credit availability: both renters and homeowners who report they face credit constraints are more likely to cut back their consumption when house prices decrease, suggesting they perceive house price movements as indicative of aggregate financial market conditions.

unpublished paper, presented at …, 2006

We examine the 'financial accelerator' model of household behaviour, whereby shocks to household ... more We examine the 'financial accelerator' model of household behaviour, whereby shocks to household balance sheets increase the amplitude of fluctuations in consumer spending by tightening or unbinding collateral constraints. We construct an alternative model where households have access to both secured and unsecured debt, and examine the consequences of shocks to household balance sheets (primarily, the value of housing wealth) in this augmented setting. We demonstrate that our alternative model considerably reduces the amplitude of fluctuations in debtfinanced consumer spending arising from fluctuations in household asset values. The paper tests the applicability of the two models using household panel data for the United Kingdom.

The University of Nottingham, 2011

Journal of the European …, 2010

We examine the impact of unanticipated housing capital gains on consumption behaviour using data ... more We examine the impact of unanticipated housing capital gains on consumption behaviour using data from the British Household Panel Survey and county-level house price data. We condition the models on household financial expectations and on household real financial capital gains imputed from the Family Resources Survey. We find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0.01. Omitting the measure of financial expectations biases the results upwards. We find little evidence of heterogeneity in responses of young and old homeowners, but differences between owners and renters. We also find asymmetric behaviour between house price rises and falls, and a disproportionate impact on saving if the household had negative housing equity at the start of the period.

Labour Economics, 2009

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United... more This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to self-employment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.

The BE Journal of Macroeconomics, 2011

Using household panel data, we present evidence on the relationship between house price growth an... more Using household panel data, we present evidence on the relationship between house price growth and household indebtedness among homeowners in the United States for the period 1999 to 2007. We posit an underlying mechanism whereby rising housing wealth allows households to increase their collateralised borrowing. Over the period, we find that roughly one-fifth of the growth in indebtedness among U.S. households can be explained by rising house prices. This housing wealth–indebtedness link is stronger among the minority of households that were initially “collateral constrained.â€

The Economic Journal, 2012

Individuals exhibiting problems repaying their debt obligations also exhibit much worse psycholog... more Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health. Selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two way. Using individual level UK panel data, local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social norm effects of problem debt are investigated using local bankruptcy and repossession rates. Results indicate there are sizeable causal links and social norm effects in the debtpsychological health relationship.

Economica, 2010

We use household panel data to explore the link between changes in house prices and household ind... more We use household panel data to explore the link between changes in house prices and household indebtedness (both secured on housing assets and unsecured) in the United Kingdom. We show that households which are borrowing-constrained by a lack of housing equity as collateral make greater use of unsecured debt such as credit cards or personal loans. In response to rising house prices, which relax this constraint, such households are more likely to refinance and to increase their indebtedness relative to unconstrained households. However, for most households, house price movements appear to have little impact on indebtedness.

Journal of Economic Psychology, 2012

ideas.repec.org

Using household panel data, this paper examines the impact of income uncertainty and house price ... more Using household panel data, this paper examines the impact of income uncertainty and house price uncertainty on home ownership in the United Kingdom. The existing literature based on cross-sectional studies finds a negative relationship between income uncertainty and home ownership. This paper utilises data on transitions into home ownership and exogenous variation in income uncertainty, avoiding the endogeneity of income to home ownership status. It also conditions the empirical estimates on a measure of house price volatility utilising a local-level house price index to control house price uncertainty, which might also discourage home ownership. Results show a strong role for income uncertainty in lowering the likelihood of house purchase, but no statistically significant role for house price uncertainty.

Recent household financial models predict that collateral-constrained households are more likely ... more Recent household financial models predict that collateral-constrained households are more likely to increase debt-financed spending in response to rising house values. We augment this model to consider the use of unsecured debt such as credit cards. Using household panel data, we consider microeconomic evidence on the behaviour of households in the United States and the United Kingdom in response to rising house prices. The evidence confirms that previously collateral-constrained households in both countries increase their indebtedness more than unconstrained households as house prices rose. But whereas United Kingdom households used house price gains primarily to refinance existing unsecured debt, United States households were more likely to increase their total indebtedness. Our results imply that on average households in the United States extract as much as 10% of their housing equity gains to fund consumption spending, and suggest that housing wealth effects predominantly arise through unbinding liquidity constraints.

The 'financial accelerator' model when applied to households states that shocks to household bala... more The 'financial accelerator' model when applied to households states that shocks to household balance sheets (primarily changes in house prices) amplify fluctuations in consumer spending by tightening or relaxing collateral constraints on borrowing. We construct an alternative model where households also have access to unsecured debt, and examine the effect of shocks to house prices on debt-financed consumption in this augmented setting. Our alternative model reduces the amplitude of fluctuations in debt-financed consumer spending arising from fluctuations in household asset values. The paper tests the applicability of the two models using panel data for the United Kingdom that allow us to measure collateral constraints, changes in asset values and financial indebtedness at the household level.

Documentos de trabajo ( …, 2009

Los Documentos de Trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Inv... more Los Documentos de Trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Investigación que lo solicitan. No obstante están disponibles en texto completo a través de Internet: http://www.fedea.es.

Available at SSRN 1922625, 2011

The BE Journal of Economic Analysis & Policy, 2011

... The recent recession experienced in the UK and across many OECD nations has been characterise... more ... The recent recession experienced in the UK and across many OECD nations has been characterised as a ... The BE Journal of Economic Analysis & Policy, Vol ... to infer the existence of liquidity constraints via such as via observed consumption behaviour in response to predictable ...

Personally knowing someone who has been bankrupt substantially increases the likelihood of an ind... more Personally knowing someone who has been bankrupt substantially increases the likelihood of an individual reporting they would consider filing for bankruptcy. This paper provides new evidence on the role of social effects in the personal bankruptcy decision using individual-level survey data from a representative sample of households in the United Kingdom. Respondents who reported they personally knew someone who had previously been bankrupt are more likely to consider bankruptcy as a viable option for discharging their debts. By contrast, respondents from an ethnic minority group are much less likely to consider bankruptcy. Both effects are substantial in magnitude, larger than the impact of demographic characteristics and point to a strong social element to the consumer bankruptcy decision

Movements in house prices and consumer spending are closely correlated in many developed nations.... more Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints. This paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back consumption as a direct response to house price falls. Households who reported they were borrowing constrained were much more likely to report they would cut consumption.► We use a survey question on how consumers adjust spending when house prices fall. ► 30% of consumers state they would cut back consumption. ► Home owners with high loan-to-value ratios are more likely to cut spending. ► Owners and renters who are credit constrained are more likely to cut spending.

The focus for the Centre is research into individual and strategic decision-making using a combin... more The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas.

Movements in house prices and consumer spending are closely correlated in many developed nations.... more Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is in any way causal arising from either wealth effects or collateral effects. This paper uses a unique survey question on self-reported responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back their spending as a direct response to house price falls. Econometric analysis suggests that among homeowners this response is driven by collateral effects. However, perhaps surprisingly, one third of those reporting they would cut back their consumption are renters. We argue this reaction is also driven by credit availability: both renters and homeowners who report they face credit constraints are more likely to cut back their consumption when house prices decrease, suggesting they perceive house price movements as indicative of aggregate financial market conditions.

unpublished paper, presented at …, 2006

We examine the 'financial accelerator' model of household behaviour, whereby shocks to household ... more We examine the 'financial accelerator' model of household behaviour, whereby shocks to household balance sheets increase the amplitude of fluctuations in consumer spending by tightening or unbinding collateral constraints. We construct an alternative model where households have access to both secured and unsecured debt, and examine the consequences of shocks to household balance sheets (primarily, the value of housing wealth) in this augmented setting. We demonstrate that our alternative model considerably reduces the amplitude of fluctuations in debtfinanced consumer spending arising from fluctuations in household asset values. The paper tests the applicability of the two models using household panel data for the United Kingdom.

The University of Nottingham, 2011

Journal of the European …, 2010

We examine the impact of unanticipated housing capital gains on consumption behaviour using data ... more We examine the impact of unanticipated housing capital gains on consumption behaviour using data from the British Household Panel Survey and county-level house price data. We condition the models on household financial expectations and on household real financial capital gains imputed from the Family Resources Survey. We find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0.01. Omitting the measure of financial expectations biases the results upwards. We find little evidence of heterogeneity in responses of young and old homeowners, but differences between owners and renters. We also find asymmetric behaviour between house price rises and falls, and a disproportionate impact on saving if the household had negative housing equity at the start of the period.

Labour Economics, 2009

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United... more This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to self-employment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.

The BE Journal of Macroeconomics, 2011

Using household panel data, we present evidence on the relationship between house price growth an... more Using household panel data, we present evidence on the relationship between house price growth and household indebtedness among homeowners in the United States for the period 1999 to 2007. We posit an underlying mechanism whereby rising housing wealth allows households to increase their collateralised borrowing. Over the period, we find that roughly one-fifth of the growth in indebtedness among U.S. households can be explained by rising house prices. This housing wealth–indebtedness link is stronger among the minority of households that were initially “collateral constrained.â€

The Economic Journal, 2012

Individuals exhibiting problems repaying their debt obligations also exhibit much worse psycholog... more Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health. Selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two way. Using individual level UK panel data, local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social norm effects of problem debt are investigated using local bankruptcy and repossession rates. Results indicate there are sizeable causal links and social norm effects in the debtpsychological health relationship.

Economica, 2010

We use household panel data to explore the link between changes in house prices and household ind... more We use household panel data to explore the link between changes in house prices and household indebtedness (both secured on housing assets and unsecured) in the United Kingdom. We show that households which are borrowing-constrained by a lack of housing equity as collateral make greater use of unsecured debt such as credit cards or personal loans. In response to rising house prices, which relax this constraint, such households are more likely to refinance and to increase their indebtedness relative to unconstrained households. However, for most households, house price movements appear to have little impact on indebtedness.

Journal of Economic Psychology, 2012

ideas.repec.org

Using household panel data, this paper examines the impact of income uncertainty and house price ... more Using household panel data, this paper examines the impact of income uncertainty and house price uncertainty on home ownership in the United Kingdom. The existing literature based on cross-sectional studies finds a negative relationship between income uncertainty and home ownership. This paper utilises data on transitions into home ownership and exogenous variation in income uncertainty, avoiding the endogeneity of income to home ownership status. It also conditions the empirical estimates on a measure of house price volatility utilising a local-level house price index to control house price uncertainty, which might also discourage home ownership. Results show a strong role for income uncertainty in lowering the likelihood of house purchase, but no statistically significant role for house price uncertainty.

Recent household financial models predict that collateral-constrained households are more likely ... more Recent household financial models predict that collateral-constrained households are more likely to increase debt-financed spending in response to rising house values. We augment this model to consider the use of unsecured debt such as credit cards. Using household panel data, we consider microeconomic evidence on the behaviour of households in the United States and the United Kingdom in response to rising house prices. The evidence confirms that previously collateral-constrained households in both countries increase their indebtedness more than unconstrained households as house prices rose. But whereas United Kingdom households used house price gains primarily to refinance existing unsecured debt, United States households were more likely to increase their total indebtedness. Our results imply that on average households in the United States extract as much as 10% of their housing equity gains to fund consumption spending, and suggest that housing wealth effects predominantly arise through unbinding liquidity constraints.

The 'financial accelerator' model when applied to households states that shocks to household bala... more The 'financial accelerator' model when applied to households states that shocks to household balance sheets (primarily changes in house prices) amplify fluctuations in consumer spending by tightening or relaxing collateral constraints on borrowing. We construct an alternative model where households also have access to unsecured debt, and examine the effect of shocks to house prices on debt-financed consumption in this augmented setting. Our alternative model reduces the amplitude of fluctuations in debt-financed consumer spending arising from fluctuations in household asset values. The paper tests the applicability of the two models using panel data for the United Kingdom that allow us to measure collateral constraints, changes in asset values and financial indebtedness at the household level.

Documentos de trabajo ( …, 2009

Los Documentos de Trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Inv... more Los Documentos de Trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Investigación que lo solicitan. No obstante están disponibles en texto completo a través de Internet: http://www.fedea.es.

Available at SSRN 1922625, 2011

The BE Journal of Economic Analysis & Policy, 2011

... The recent recession experienced in the UK and across many OECD nations has been characterise... more ... The recent recession experienced in the UK and across many OECD nations has been characterised as a ... The BE Journal of Economic Analysis & Policy, Vol ... to infer the existence of liquidity constraints via such as via observed consumption behaviour in response to predictable ...

Personally knowing someone who has been bankrupt substantially increases the likelihood of an ind... more Personally knowing someone who has been bankrupt substantially increases the likelihood of an individual reporting they would consider filing for bankruptcy. This paper provides new evidence on the role of social effects in the personal bankruptcy decision using individual-level survey data from a representative sample of households in the United Kingdom. Respondents who reported they personally knew someone who had previously been bankrupt are more likely to consider bankruptcy as a viable option for discharging their debts. By contrast, respondents from an ethnic minority group are much less likely to consider bankruptcy. Both effects are substantial in magnitude, larger than the impact of demographic characteristics and point to a strong social element to the consumer bankruptcy decision

Movements in house prices and consumer spending are closely correlated in many developed nations.... more Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints. This paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back consumption as a direct response to house price falls. Households who reported they were borrowing constrained were much more likely to report they would cut consumption.► We use a survey question on how consumers adjust spending when house prices fall. ► 30% of consumers state they would cut back consumption. ► Home owners with high loan-to-value ratios are more likely to cut spending. ► Owners and renters who are credit constrained are more likely to cut spending.

The focus for the Centre is research into individual and strategic decision-making using a combin... more The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas.