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Residential versus financial wealth effects on consumption from a shock in interest rates

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  • León Navarro, Manuel
  • Flores de Frutos, Rafael

Abstract

This paper analyzes the effects of residential and financial wealth on consumption from another point of view. Instead of specifying an idiosyncratic shock on each type of wealth, in this work it is specified a common monetary shock. The final wealth effect on consumption is the combination of two effects: The effect of the interest rate shock on wealth and the effect of wealth on consumption. The results for the Spanish economy indicate that the relative importance of each component varies with the term considered. Both types of wealth are important but the financial wealth effect dominates that of the housing wealth for all terms. It is only in the long run when both effects become similar.

Suggested Citation

  • León Navarro, Manuel & Flores de Frutos, Rafael, 2015. "Residential versus financial wealth effects on consumption from a shock in interest rates," Economic Modelling, Elsevier, vol. 49(C), pages 81-90.
    • Handle: RePEc:eee:ecmode:v:49:y:2015:i:c:p:81-90
    DOI: 10.1016/j.econmod.2015.03.016
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