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Wealth Effects on Consumption - Evidence from the euro area

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Abstract

This paper estimates the wealth effects on consumption in the euro area as a whole. I show that: (i) financial wealth effects are relatively large and statistically significant; (ii) housing wealth effects are virtually nil and not significant; (iii) consumption growth exhibits strong persistence and responds sluggishly to shocks; and (iv) the immediate response of consumption to wealth is substantially different from the long- run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans. JEL Classification: E21, E44, D12.

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Paper provided by European Central Bank in its series Working Paper Series with number 1050.

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Length: 31 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:ecb:ecbwps:20091050

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Keywords: consumption; housing wealth; financial wealth.;

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  1. It's not a debt crisis
    by chris dillow in Stumbling and Mumbling on 2011-11-03 11:22:28
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Cited by:
  1. Magdalena Zachłód-Jelec, 2010. "Interrelations between Consumption and Wealth in Poland," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 2(1), pages 37-58, January.
  2. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.

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