IDEAS home Printed from https://ideas.repec.org/a/onb/oenbmp/y2017iq2-17b2.html
   My bibliography  Save this article

How strong is the wealth channel of monetary policy transmission? A microeconometric evaluation for Austria

Author

Listed:
  • Nicolas Albacete

    (Oesterreichische Nationalbank, Economic Analysis Division)

  • Peter Lindner

    (Economic Analysis Division)

Abstract

We study the magnitude and the sources of wealth effects on consumer spending in Austria by using household-level data from the Austrian Household Finance and Consumption Survey (HFCS) 2010 and 2014. Microdata allow us to investigate whether such effects exist, and if so, whether they are heterogeneous across household groups. We find evidence for a limited but statistically significant positive (long-run) relationship between wealth and consumption in Austria: a EUR 1 increase in gross/net wealth increases mean consumption by 1 cent. We also find that this effect is driven by financial assets for which the marginal propensity to consume is estimated to be around 5 cent. Furthermore, the consumption function is concave in wealth, i.e. the marginal propensity to consume out of wealth is lower for households with more wealth. However, given that in Austria wealth is concentrated in the upper tail of the wealth distribution, the decreasing marginal propensity to consume out of wealth is counterbalanced in the aggregate. Additionally, the marginal propensity to consume out of wealth increases across the consumption distribution. Regarding the various hypotheses discussed in the literature concerning the nature of the correlation between wealth and consumption, for Austria we can find support for the precautionary savings channel only.

Suggested Citation

  • Nicolas Albacete & Peter Lindner, 2017. "How strong is the wealth channel of monetary policy transmission? A microeconometric evaluation for Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/17, pages 32-53.
    • Handle: RePEc:onb:oenbmp:y:2017:i:q2/17:b:2
    as

    Download full text from publisher

    File URL: https://www.oenb.at/dam/jcr:0e908656-6385-4486-a437-7ed02c439ea5/mop_2017_q2_analyses_albacete_lindner.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Luc Arrondel & Laura Bartiloro & Pirmin Fessler & Peter Lindner & Thomas Y. Mathä & Cristiana Rampazzi & Frédérique Savignac & Tobias Schmidt & Martin Schürz & Philip Vermeulen, 2016. "How Do Households Allocate Their Assets? Stylized Facts from the Eurosystem Household Finance and Consumption Survey," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 129-220, June.
    2. Savignac, Frédérique & Arrondel, Luc & Lamarche, Pierre, 2015. "Wealth effects on consumption across the wealth distribution: empirical evidence," Working Paper Series 1817, European Central Bank.
    3. Ludwig Alexander & Sløk Torsten, 2004. "The Relationship between Stock Prices, House Prices and Consumption in OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-28, March.
    4. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
    5. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    6. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    7. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    8. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, January.
    9. Bover, Olympia, 2006. "Wealth Effects on Consumption: Microeconometric Estimates from a New Survey of Household Finances," CEPR Discussion Papers 5874, C.E.P.R. Discussion Papers.
    10. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    11. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the US Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387, National Bureau of Economic Research, Inc.
    12. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
    13. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Consumption, house prices and expectations," Bank of England working papers 271, Bank of England.
    14. Daniel Cooper, 2013. "House Price Fluctuations: The Role of Housing Wealth as Borrowing Collateral," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1183-1197, October.
    15. Pirmin Fessler & Peter Lindner & Martin Schürz, 2019. "Eurosystem Household Finance and Consumption Survey 2017 for Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/18, pages 36-66.
    16. Orazio P. Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2009. "Booms and Busts: Consumption, House Prices and Expectations," Economica, London School of Economics and Political Science, vol. 76(301), pages 20-50, February.
    17. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1687-1726.
    18. Mr. Torsten M Sloek & Ms. Hali J Edison, 2001. "Wealth Effects and the New Economy," IMF Working Papers 2001/077, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yener Coskun & Christos Bouras & Rangan Gupta & Mark E. Wohar, 2021. "Multi-Horizon Financial and Housing Wealth Effects across the U.S. States," Sustainability, MDPI, vol. 13(3), pages 1-20, January.
    2. Martin Schneider & Richard Sellner, 2022. "Private consumption and savings during the COVID-19 pandemic in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/21, pages 43-59.
    3. Belke Ansgar & Dreger Christian, 2019. "Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(5-6), pages 841-860, October.
    4. Christian Ragacs & Richard Sellner & Klaus Vondra, 2021. "Economic recovery aided by coronavirus vaccine rollout. Economic outlook for Austria from 2021 to 2023 (June 2021)," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/21, pages 81-115.
    5. Yener Coskun & Nicholas Apergis & Esra Alp Coskun, 2022. "Nonlinear responses of consumption to wealth, income, and interest rate shocks," Empirical Economics, Springer, vol. 63(3), pages 1293-1335, September.
    6. Yener Coskun & Burak Sencer Atasoy & Giacomo Morri & Esra Alp, 2018. "Wealth Effects on Household Final Consumption: Stock and Housing Market Channels," IJFS, MDPI, vol. 6(2), pages 1-32, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    2. Savignac, Frédérique & Arrondel, Luc & Lamarche, Pierre, 2015. "Wealth effects on consumption across the wealth distribution: empirical evidence," Working Paper Series 1817, European Central Bank.
    3. Arrondel, Luc & Lamarche, Pierre & Savignac, Frédérique, 2019. "Does inequality matter for the consumption-wealth channel? Empirical evidence," European Economic Review, Elsevier, vol. 111(C), pages 139-165.
    4. Le Blanc, Julia & Lydon, Reamonn, 2019. "Indebtedness and spending: What happens when the music stops?," Research Technical Papers 14/RT/19, Central Bank of Ireland.
    5. de Bresser, Jochem & Kools, Lieke & Knoef, Marike, 2019. "Cutting one’s coat according to one’s cloth : How did the Great Recession affect retirement resources and expenditure goals?," Other publications TiSEM 9415a8f7-182f-4675-893e-c, Tilburg University, School of Economics and Management.
    6. Swamy, Vighneswara, 2017. "Wealth Effects and Macroeconomic Dynamics – Evidence from Indian Economy," MPRA Paper 76836, University Library of Munich, Germany.
    7. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2015. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 21-41.
    8. Garbinti, Bertrand & Lamarche, Pierre & Savignac, Frédérique & Lecanu, Charlélie, 2020. "Wealth effect on consumption during the sovereign debt crisis: households heterogeneity in the euro area," Working Paper Series 2357, European Central Bank.
    9. Hori Masahiro & Niizeki Takeshi, 2019. "Housing Wealth Effects in Japan: Evidence Based on Household Micro Data," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(2), pages 1-28, April.
    10. Lu Zhang, 2019. "Do house prices matter for household consumption?," CPB Discussion Paper 396, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Lu Zhang, 2019. "Do house prices matter for household consumption?," CPB Discussion Paper 396.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Pedro Trivin, 2022. "The wealth-consumption channel: evidence from a panel of Spanish households," Review of Economics of the Household, Springer, vol. 20(4), pages 1377-1428, December.
    13. Yener Coskun & Burak Sencer Atasoy & Giacomo Morri & Esra Alp, 2018. "Wealth Effects on Household Final Consumption: Stock and Housing Market Channels," IJFS, MDPI, vol. 6(2), pages 1-32, June.
    14. Maruška Vizek, 2011. "The Influence of Stock Market and Housing Wealth on Consumption Expenditures in Transition Countries," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 3(1).
    15. Amina Ahec �onje & Anita Ceh Casni & Maru�ka Vizek, 2012. "Does housing wealth affect private consumption in European post-transition countries? Evidence from linear and threshold models," Post-Communist Economies, Taylor & Francis Journals, vol. 24(1), pages 73-85, June.
    16. Ahec Šonje, Amina & Čeh Časni, Anita & Vizek, Maruška, 2014. "The effect of housing and stock market wealth on consumption in emerging and developed countries," Economic Systems, Elsevier, vol. 38(3), pages 433-450.
    17. Marco Angrisani & Michael D. Hurd & Susann Rohwedder, 2015. "The Effect of Housing and Stock Wealth Losses on Spending in the Great Recession," Working Papers WR-1101, RAND Corporation.
    18. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 606-622, September.
    19. Xiaoqin Sun & Yuhai Su & Honglei Liu & Chengyou Li, 2022. "The Impact of House Price on Urban Household Consumption: Micro Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-20, October.
    20. Khorunzhina, Natalia, 2021. "Intratemporal nonseparability between housing and nondurable consumption: Evidence from reinvestment in housing stock," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 658-670.

    More about this item

    Keywords

    wealth effects; consumption; housing; stock ownership;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:onb:oenbmp:y:2017:i:q2/17:b:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rita Glaser-Schwarz (email available below). General contact details of provider: https://edirc.repec.org/data/oenbbat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.