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Consumption, wealth and business cycles in Germany

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  • 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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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. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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Citations

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Cited by:
  1. 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.
  2. Riccardo De Bonis & Andrea Silvestrini, 2011. "The effects of financial and real wealth on consumption: new evidence from OECD countries," Temi di discussione (Economic working papers) 837, Bank of Italy, Economic Research and International Relations Area.
  3. 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.
  4. Jiri Slacalek, 2006. "International Wealth Effects," Discussion Papers of DIW Berlin 596, DIW Berlin, German Institute for Economic Research.
  5. Eilev S. Jansen, 2010. "Wealth effects on consumption in financial crises: the case of Norway," Discussion Papers 616, Research Department of Statistics Norway.
  6. 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).
  7. Martin Gonzalez-Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," 2004 Meeting Papers 199, Society for Economic Dynamics.
  8. 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.
  9. Vetlov, Igor & Warmedinger, Thomas, 2006. "The German block of the ESCB multi-country model," Working Paper Series 0654, European Central Bank.
  10. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, 02.
  11. Chauvin, V. & Damette, O., 2010. "Wealth effects: the French case," Working papers 276, Banque de France.
  12. Dreger, Christian & Reimers, Hans-Eggert, 2011. "The long run relationship between private consumption and wealth: common and idiosyncratic effects," Discussion Papers 295, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.

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