Abstract
This dissertation studies the topics on households’ consumption, financial market condition, and house price. To explore the issue, we employ the data from the Survey of Family Income and Expenditure in Taiwan (SFIE). As SFIE data are repetitive cross-section surveys rather than longitudinal panel data, we use the pseudo-panel approach a la Deaton (1985) to construct real consumption and income series based on the birth year of household heads. The first chapter aims to empirical study the role of credit constraint in Taiwan’s household consumption using the event of Taiwan’s early 1990s banking deregulation. The second chapter attempts to explore the relation between house price and household consumption. In the first chapter, we use the event of Taiwan’s early 1990s banking deregulation to explore the role of credit constraint in Taiwan’s household consumption. We examine how the response of consumption to predictable changes in income varies over the financial market condition. We employ SFIE over the period 1982 to 2015 to construct consumption and income series for cohorts. In our empirical study, on the one hand, as the general financial environment may be influenced by not only banking deregulation but also other factors, we construct the index of financial condition to capture the changing financial environment and examine how it affects credit constraint and household consumption. On the other hand, since the credit constraints across cohorts tend to be heterogeneous, we consider the following measures to differentiate high and low liquidity-constrained cohorts: cohorts’ net property income, cohorts’ disposable income and the age of cohorts’ head (age below 40 vs. age above or equal 40). Our empirical study reveals the evidence for a gradual way of financial liberalization as well as the effect of relaxed financial market condition on the easing of these constraints particularly during the period of the mid-1980s and -1990s. More specifically, we obtain higher estimates for the sensitivity of consumption to predictable changes in income for cohorts facing a higher degree of liquidity constraint. We also find that the relaxed financial market condition has a significant impact on easing degree of credit constraint, especially for the cohorts facing a higher degree of liquidity constraint when we use cohorts’ net property income and cohorts’ disposable income to differentiate. However, there is no significant differences in age cohorts. These finding suggests that the older cohorts have higher income from property and disposable but young cohorts are better capacity for repayment and get more benefits from financial liberalization than older cohorts. In the second chapter, our study is motivated by the debate in recent literature that the relation between house price and household consumption is explained by wealth effect or the common factor hypothesis, e.g., Campbell and Cocco (2007) and Attanasio et al. (2009, 2011). To explore the relation between house price and consumption in Taiwan, we focus on the characteristics that real estate market is regional and urban leads rural, and employ the sample of age and residence stage households over the period 1993 to 2006 to examine the following questions: (1) can regional house prices explain the difference of consumption growth in regions; (2) whether the difference between the impacts of house price on consumption of cohorts is a direct result of their difference in age (young and older) and residence stage (rural vs. urban). According to wealth effect, the impacts of house price on cohorts’ consumption should be different in region and generation. In our regression model, we extend Rational Expectations Life-Cycle/Permanent Income Model by Muellbauer and Lattimore (1995) and consider mortality rate as an uncertainty factor and regional and macro factors as control variables. In our empirical results, we find that the difference of consumption growth in regions can’t be explained by regional house prices. We also find that house price has positive effects on consumption, but there is no difference between age and residence stage cohorts. Moreover, the effects of house price on consumption using Shinyi house price index that represents pre-owned house price are more significant than Cathay house price index that represents new house property price. Our findings are consistent with Attanasio et al. (2009, 2011) that the relation between house price and consumption is the common hypothesis.