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Residential and Stock Market Effects on Consumption across Europe

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  • Luis Miguel Pacheco
  • Jose Martins Barata

Abstract

The aim of this paper is to explain private consumption as a function of income and wealth with data from European Union countries. To examine how the developments in housing and stock markets may have affected consumption behaviour, we adopt two econometric procedures. First, we use the Stock-Watson procedure to account for wealth effects on consumption over the long run. Second, through an error-correction model we measure wealth effects on consumption over the short run. We found significant albeit mixed values for the long-run elasticities of consumption with respect to real residential and equity prices. We also found strong evidence that consumption exhibits error-correction behaviour in the short run, with the value of the error-correction term signifying that household consumption takes several quarters to completely respond to changes in the markets.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of Housing Policy.

Volume (Year): 5 (2005)
Issue (Month): 3 ()
Pages: 255-278

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Handle: RePEc:taf:intjhp:v:5:y:2005:i:3:p:255-278

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Related research

Keywords: Housing prices; asset prices; wealth effects; consumption; European Union; dynamic ordinary least squaresv; error-correction models;

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Cited by:
  1. Márquez, Elena & Martínez-Cañete, Ana R. & Pérez-Soba, Inés, 2013. "Wealth shocks, credit conditions and asymmetric consumption response: Empirical evidence for the UK," Economic Modelling, Elsevier, vol. 33(C), pages 357-366.

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