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The effects of financial and real wealth on consumption: new evidence from OECD countries

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  • Riccardo De Bonis

    ()
    (Bank of Italy)

  • Andrea Silvestrini

    ()
    (Bank of Italy)

Abstract

In this paper we present new estimates of the effect of households’ financial and real wealth on consumption. The analysis makes reference to eleven OECD countries and takes into account quarterly data from 1997 to 2008. Unlike most of the previous literature on European countries, we measure financial wealth using quarterly harmonized data on households’ financial assets and liabilities, which have been gleaned from the flow of funds. For comparison, we also employ national share price indices as a proxy for financial wealth. We rely on 1) standard static panel and 2) single-country level autoregressive distributed lag estimations. Furthermore, we implement a recent econometric approach that allows for more flexible assumptions in the non-stationary panel framework under consideration. Our results show that both net financial wealth and real wealth have a positive effect on consumption. Overall, the influence of net financial assets is stronger than that of real assets.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 837.

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Date of creation: Nov 2011
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Handle: RePEc:bdi:wptemi:td_837_11

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Keywords: consumption; household financial and real wealth; wealth effects; panel cointegration.;

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  1. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2008. "Consumption, wealth and business cycles in Germany," Empirical Economics, Springer, vol. 34(3), pages 451-476, June.
  2. Karl E. Case, John M. Quigley, Robert J. Shiller., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Economics Working Papers E01-308, University of California at Berkeley.
  3. Lise Pichette & Dominique Tremblay, 2003. "Are Wealth Effects Important for Canada?," Working Papers 03-30, Bank of Canada.
  4. Fátima Cardoso & Luisa Farinha & Rita Lameira, 2008. "Household Wealth in Portugal: Revised Series," Working Papers o200801, Banco de Portugal, Economics and Research Department.
  5. Christian Dreger & Hans-Eggert Reimers, 2009. "The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models," Discussion Papers of DIW Berlin 872, DIW Berlin, German Institute for Economic Research.
  6. Vincent Labhard & Gabriel Sterne & Chris Young, 2005. "Wealth and consumption: an assessment of the international evidence," Bank of England working papers 275, Bank of England.
  7. Joseph P. Byrne & E. Philip Davis, 2003. "Disaggregate Wealth and Aggregate Consumption: an Investigation of Empirical Relationships for the G7," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(2), pages 197-220, 05.
  8. Kam-Ki Tang, 2006. "The wealth effect of housing on aggregate consumption," Applied Economics Letters, Taylor & Francis Journals, vol. 13(3), pages 189-193.
  9. Filippo Altissimo & Evaggelia Georgiou & Teresa Sastre & Maria Teresa Valderrama & Gabriel Sterne & Marc Stocker & Mark Weth & Karl Whelan & Alpo Willman, 2005. "Wealth and asset price effects on economic activity," Occasional Paper Series 29, European Central Bank.
  10. Christian Dreger & Hans-Eggert Reimers, 2006. "Consumption and disposable income in the EU countries: the role of wealth effects," Empirica, Springer, vol. 33(4), pages 245-254, September.
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Cited by:
  1. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
  2. Cristini, Annalisa & Sevilla, Almudena, 2013. "Do House Prices Affect Consumption? A Re-assessment of the Wealth Hypothesis," IZA Discussion Papers 7576, Institute for the Study of Labor (IZA).
  3. Daniel Cooper & Karen Dynan, 2013. "Wealth shocks and macroeconomic dynamics," Public Policy Discussion Paper 13-4, Federal Reserve Bank of Boston.
  4. Riccardo De Bonis & Daniele Fano & Teresa Sbano, 2013. "Household aggregate wealth in the main OECD countries from 1980 to 2011: what do the data tell us?," Questioni di Economia e Finanza (Occasional Papers) 160, Bank of Italy, Economic Research and International Relations Area.
  5. Antonio Bassanetti & Concetta Rondinelli, 2013. "Italian households’ opinions on the difficulty of saving," Questioni di Economia e Finanza (Occasional Papers) 147, Bank of Italy, Economic Research and International Relations Area.

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