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Financial imbalances and household welfare: Empirical evidence from the EU

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  • Stracca, Livio
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    Abstract

    This paper uses Eurobarometer survey data from 26 EU countries to evaluate whether the general public cares about financial stability and imbalances over and above their effects on macroeconomic variables such as unemployment and inflation. I confirm previous results in the literature that life satisfaction – a widely used measure of household welfare – negatively depends on the unemployment rate. In addition to previous results in the literature, I establish a strong empirical link between life satisfaction and consumer confidence as measured by the European Commission consumer survey. The main result of the paper is that life satisfaction generally does not systematically depend on a number of measures of financial imbalance based on credit and asset prices once the other macroeconomic controls are included.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 11 (2014)
    Issue (Month): C ()
    Pages: 82-91

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    Handle: RePEc:eee:finsta:v:11:y:2014:i:c:p:82-91

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    Web page: http://www.elsevier.com/locate/jfstabil

    Related research

    Keywords: Eurobarometer; Life satisfaction; Consumer confidence; Financial stability; Central bank;

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    1. Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2011. "Anchoring countercyclical capital buffers: the role of credit aggregates," BIS Working Papers 355, Bank for International Settlements.
    2. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-77, June.
    3. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
    4. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 1999. "The macroeconomics of happiness," ZEI Working Papers B 03-1999, ZEI - Center for European Integration Studies, University of Bonn.
    5. Mollerstrom, Johanna Britta & Laibson, David I. & Chauvin, Kyle, 2011. "Asset Bubbles and the Cost of Economic Fluctuations," Scholarly Articles 9938146, Harvard University Department of Economics.
    6. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    7. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
    8. Fornari, Fabio & Stracca, Livio, 2013. "What does a financial shock do? First international evidence," Working Paper Series 1522, European Central Bank.
    9. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
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