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The dynamics of household final consumption: The role of wealth channel

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  • Esra Alp
  • Unal Seven

Abstract

Exploring dynamics of household final consumption is an important concern for policy-makers. Turkey had witnessed various financial shocks and crises over the last two decades. These turbulent economic periods affected consumption behaviour and therefore, other macroeconomic variables. In this paper, we examine the linkage between household final consumption and wealth in Turkey, arising from equity and housing market channels over the period from 1998 Q1 to 2016 Q2. We employ ARDL and FMOLS models in order to analyse long-term relationship and then, variance decomposition and impulse response analysis are used for verifying the effects of shocks. The results suggest that income, credit and housing wealth are positively, interest rate and equity market wealth are negatively associated with consumption. Variance decomposition and impulse response analyses imply that interest rate driven shocks may cause to a decline in asset prices and so aggregate consumption through consumption-wealth channel. These evidences may be beneficial for policymakers to understand the role of interest rate and asset prices on the consumption-wealth channel in Turkey.

Suggested Citation

  • Esra Alp & Unal Seven, 2019. "The dynamics of household final consumption: The role of wealth channel," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(1), pages 21-32.
    • Handle: RePEc:tcb:cebare:v:19:y:2019:i:1:p:21-32
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    Citations

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    Cited by:

    1. Esra Alp Coskun & Nicholas Apergis & Yener Coskun, 2022. "Threshold effects of housing affordability and financial development on the house price‐consumption nexus," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1785-1806, April.
    2. Hindls Richard & Marek Lubos & Hronová Stanislava, 2022. "Changes in the structure of household disposable income in selected countries as a reflection of crises after 2000," Statistics in Transition New Series, Polish Statistical Association, vol. 23(4), pages 1-19, December.
    3. Zhang, Jiaping & Zhang, Huirong & Gong, Xiaomei, 2022. "Mobile payment and rural household consumption: Evidence from China," Telecommunications Policy, Elsevier, vol. 46(3).
    4. Oguzhan Cepni & Yavuz Selim Hacihasanoglu & Muhammed Hasan Yilmaz, 2020. "Credit decomposition and economic activity in Turkey: A wavelet-based approach," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 20(3), pages 109-131.
    5. García Ana Laura & González Juan Pedro & Velázquez Jhasua, 2022. "An Approach for Housing Wealth Estimation: The Mexican Case," Working Papers 2022-12, Banco de México.
    6. Roman Kozlov, 2023. "The Effect of Interest Rate Changes on Consumption: An Age-Structured Approach," Economies, MDPI, vol. 11(1), pages 1-25, January.
    7. Yener Coskun & Nicholas Apergis & Esra Alp Coskun, 2022. "Nonlinear responses of consumption to wealth, income, and interest rate shocks," Empirical Economics, Springer, vol. 63(3), pages 1293-1335, September.

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