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Wealth shocks, credit conditions and asymmetric consumption response: Empirical evidence for the UK

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  • Márquez, Elena
  • Martínez-Cañete, Ana R.
  • Pérez-Soba, Inés
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    Abstract

    The evolution of real estate prices and the stock market indices in several OECD countries, such as the UK, has attracted researchers' interest to the empirical analysis of consumers' response to subsequent changes in wealth. In this line, this paper investigates the existence of wealth effects in the UK economy, taking into account the credit conditions of financial markets, and whether consumption responds asymmetrically to a positive or negative financial and housing wealth shocks. We apply the Enders and Siklos (2001) M-TAR methodology modified, for application in a multivariate framework, following Stevans (2004); unlike this author, both financial and real estate wealth are included. The results show that there is a consumption wealth effect and that the consumption discrepancies resulting from an unanticipated positive change in real estate wealth are eliminated whereas those resulting from a negative change are not; however, when the changes in the UK households financial wealth are considered, we find that consumption responds only to negative unanticipated changes in such a wealth.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 33 (2013)
    Issue (Month): C ()
    Pages: 357-366

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    Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:357-366

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    Web page: http://www.elsevier.com/locate/inca/30411

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    Keywords: Consumption wealth effect; Financial wealth; Real estate wealth; M-TAR models; Asymmetric adjustment; Credit conditions index;

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