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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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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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  2. Hoffmann, Mathias, 2006. "Proprietary Income, Entrepreneurial Risk, and the Predictability of U.S. Stock Returns," Technical Reports 2006,14, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  3. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics.
  2. Chauvin, V. & Damette, O., 2010. "Wealth effects: the French case," Working papers 276, Banque de France.
  3. Dirk Niepelt & Martin Gonzalez-Eiras, 2007. "Sustaining Social Security," 2007 Meeting Papers 95, Society for Economic Dynamics.
  4. Riccardo De Bonis & Andrea Silvestrini, 2010. "The Effects of Financial and Real Wealth on Consumption: New Evidence from OECD Countries," Mo.Fi.R. Working Papers 38, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  5. Jiri Slacalek, 2006. "International Wealth Effects," Discussion Papers of DIW Berlin 596, DIW Berlin, German Institute for Economic Research.
  6. 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.
  7. Vetlov, Igor & Warmedinger, Thomas, 2006. "The German block of the ESCB multi-country model," Working Paper Series 0654, European Central Bank.
  8. 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.
  9. 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.
  10. Eilev Jansen, 2013. "Wealth effects on consumption in financial crises: the case of Norway," Empirical Economics, Springer, vol. 45(2), pages 873-904, October.
  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. 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.

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