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The response of Australian consumption to housing wealth

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Author Info

  • Fisher, Lance A.
  • Otto, Glenn
  • Voss, Graham M.

Abstract

Large variations in house prices can lead to significant changes in the level of household wealth and this may affect household consumption. Using Lettau and Ludvigson's [Lettau, M., Ludvigson, S.C., 2004. Understanding trend and cycle in asset values: reevaluating the wealth effect on consumption. American Economic Review 94, 276-299] cointegration approach, we investigate the response of non-housing consumption to permanent and transitory changes in financial and non-financial (housing) wealth in Australia since the mid-1970s. The data provide evidence that housing wealth contains a large transitory component, but up to 2004 at least, these transitory changes in wealth are not associated with any significant response in consumption. When post-2004 data are included in the estimation, there is some evidence that household consumption responds to recent transitory rises in wealth and labor income. However this finding needs to be weighed against weaker evidence of a cointegrating relationship for consumption, income and wealth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 1 (March)
Pages: 284-299

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:284-299

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Consumption Wealth Housing wealth Cointegration Permanent and transitory shocks;

References

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Citations

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Cited by:
  1. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," CESifo Working Paper Series 3601, CESifo Group Munich.
  2. De Veirman Emmanuel & Dunstan Ashley, 2011. "Time-Varying Returns, Intertemporal Substitution and Cyclical Variation in Consumption," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-41, July.
  3. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Are Stock and Housing Returns Complements or Substitutes? Evidence from OECD Countries," NIPE Working Papers 33/2011, NIPE - Universidade do Minho.
  4. Callan Windsor & Jarkko Jääskelä & Richard Finlay, 2013. "Home Prices and Household Spending," RBA Research Discussion Papers rdp2013-04, Reserve Bank of Australia.
  5. Genovaitė Liobikienė & Justina Mandravickaitė, 2013. "Convergence of new members of the EU: changes in household consumption expenditure structure regarding environmental impact during the prosperous period," Environment, Development and Sustainability, Springer, vol. 15(2), pages 407-427, April.
  6. David M. Williams, 2010. "Consumption, wealth and credit liberalisation in Australia," Economics Series Working Papers 492, University of Oxford, Department of Economics.

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