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Consumption, wealth and business cycles in Germany

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Author Info

  • Britta Hamburg

    ()

  • Mathias Hoffmann

    ()

  • Joachim Keller

    ()

Abstract

This paper studies the long-run relationship between consumption, asset wealth and income in Germany, based on data from 1980 to 2003. While earlier studies — mostly for the Anglo-Saxon economies — have generally documented that departures of these three variables from their common trend signal changes in asset prices, we find that for Germany they predict changes in income. Asset price changes are found to have virtually no effect on consumption — both in the short as well as in the long-run. We offer an explanation of this finding that emphasizes differences between the bank-based German financial system and the rather market-based Anglo-American system: stock ownership by private households is much less widespread in Germany than in the Anglo-Saxon economies and the share of publicly traded equity in household wealth is much smaller in Germany than in the U.S., the UK or Australia.

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File URL: http://hdl.handle.net/10.1007/s00181-007-0130-9
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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 34 (2008)
Issue (Month): 3 (June)
Pages: 451-476

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Handle: RePEc:spr:empeco:v:34:y:2008:i:3:p:451-476

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Related research

Keywords: Wealth effect on consumption; Business cycles; Monetary policy transmission; Financial systems; Asset price predictability; Permanent income hypothesis; E21; E32; E44; G12; G20;

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References

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  1. Hoffmann, Mathias, 2000. "Long run recursive VAR models and QR decompositions," Discussion Paper Series In Economics And Econometrics 0015, Economics Division, School of Social Sciences, University of Southampton.
  2. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers 2223, C.E.P.R. Discussion Papers.
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  28. repec:fth:harver:1435 is not listed on IDEAS
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Citations

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Cited by:
  1. Martín Gonzalez-Eiras & Dirk Niepelt, 2005. "Sustaining Social Security," CESifo Working Paper Series 1494, CESifo Group Munich.
  2. Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jiri, 2010. "How large are housing and financial wealth effects? A new approach," Working Paper Series 1283, European Central Bank.
  3. Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jirka, 2006. "How large is the housing wealth effect? A new approach," CFS Working Paper Series 2006/35, Center for Financial Studies (CFS).
  4. Eilev S. Jansen, 2010. "Wealth effects on consumption in financial crises: the case of Norway," Discussion Papers 616, Research Department of Statistics Norway.
  5. Riccardo De Bonis & Andrea Silvestrini, 2012. "The effects of financial and real wealth on consumption: new evidence from OECD countries," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 409-425, March.
  6. Benjamin R. Auer, 2012. "Lassen sich CAPM, HCAPM und CCAPM durch konsumbasierte zeitvariable Parameterspezifikation rehabilitieren?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 232(5), pages 518-544, September.
  7. Christian Dreger & Hans-Eggert Reimers, 2012. "The long run relationship between private consumption and wealth: common and idiosyncratic effects," Portuguese Economic Journal, Springer, vol. 11(1), pages 21-34, April.
  8. Jiri Slacalek, 2006. "International Wealth Effects," Computing in Economics and Finance 2006 425, Society for Computational Economics.
  9. Vetlov, Igor & Warmedinger, Thomas, 2006. "The German block of the ESCB multi-country model," Working Paper Series 0654, European Central Bank.
  10. Oliver Holtemöller & Rainer Schulz, 2010. "Investor Rationality and House Price Bubbles: Berlin and the German Reunification," German Economic Review, Verein für Socialpolitik, vol. 11, pages 465-486, November.
  11. Thomas Nitschka, 2012. "Global and country-specific business cycle risk in time-varying excess returns on asset markets," Working Papers 2012-10, Swiss National Bank.
  12. Chauvin, V. & Damette, O., 2010. "Wealth effects: the French case," Working papers 276, Banque de France.

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