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Financial effects in historic consumption and investment functions

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  • Engelbert Stockhammer
  • Erik Bengtsson

Abstract

The global financial crisis has highlighted the importance of financial factors on economic performance. Most of the existing research analyses the contemporary experience, and especially the 1980 s onwards. This paper investigates the effects of stock prices, real estate prices and debt on consumption and investment expenditures by estimating consumption and investment equations for about 110 years of data for Britain, France, Norway and Sweden. We find positive debt effects on consumption in three of four countries, but no consistent effects of stock prices and house prices. Effects on consumption are stronger in the more market-based economy of Britain than in the more state-oriented economies of France, Norway and Sweden: in Britain but not in the other countries, consumption has increased in response to stock and house prices. We find positive effects of stock prices on investment in all four countries. Credit expansion boosts investment in some of the countries while house prices seem to have become more influential for investment after 1980. The results indicate that there is interesting variation in financial effects over time, and point forward for possible research on the interaction between financial variables and the real economy since the early twentieth century.

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  • Engelbert Stockhammer & Erik Bengtsson, 2020. "Financial effects in historic consumption and investment functions," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 304-326, May.
    • Handle: RePEc:taf:irapec:v:34:y:2020:i:3:p:304-326
    DOI: 10.1080/02692171.2020.1732307
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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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