We use panel data on a complete inventory of household spending and assets to estimate the spending response to the sharp and largely unexpected declines in house values that occurred in the Great Recession. Our study complements the existing literature on this topic by relying exclusively on longitudinal micro data on both household wealth and expenditure. Our data span the period 2002-2012, allowing us to separate trends in spending from innovations in response to unexpected wealth changes. We find the marginal propensity to consume out of an unexpected housing wealth change to be 6 cents per dollar among older American households.
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