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Wealth effects on consumption in financial crises: the case of Norway

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  • Eilev Jansen

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Abstract

A dynamic consumption function, where consumption in the long run is determined by households’ disposable income and wealth, has been superior to the Euler equation in explaining the development of Norwegian aggregate consumption over several decades. This period covers the years of financial deregulation in the mid 1980s, the banking crisis around 1990 following the deregulation and the current international financial crisis. In the current version, long run consumption is homogeneous in income and wealth and there is also a significant effect from after-tax real interest rates. A change in the correlation pattern between real interest rates and wealth, which is related to a change in the monetary policy regime, is the reason why both variables need to be included in the long run relationship in order to explain the development over the period 2005q1–2008q4. Copyright Springer-Verlag Berlin Heidelberg 2013

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 45 (2013)
Issue (Month): 2 (October)
Pages: 873-904

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Handle: RePEc:spr:empeco:v:45:y:2013:i:2:p:873-904

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Keywords: Financial crisis; Consumption; Wealth effects; Interest rates; Savings rate; C51; C52; C53; E21;

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  1. On the cost of financial crises
    by Economic Logician in Economic Logic on 2010-06-02 15:39:00
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Cited by:
  1. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "The importance of the distribution sector for exchange rate pass-through in a small open economy. A large scale macroeconometric modelling approach," Discussion Papers, Research Department of Statistics Norway 731, Research Department of Statistics Norway.

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