What Drives Personal Consumption? The Role of Housing and Financial Wealth
AbstractI investigate the effect of wealth on consumption in a new dataset with financial and housing wealth from 16 countries. The baseline estimation method based on the sluggishness of consumption growth implies that the eventual (long-run) marginal propensity to consume out of total wealth is 5 cents (averaged across countries). While the wealth effects are quite strong—between 4 and 6 cents—in countries with more developed mortgage markets and in market-based, Anglo-Saxon and non euro area economies, consumption only barely reacts to wealth elsewhere. The effect of housing wealth is somewhat smaller than that of financial wealth for most countries, but not for the US and the UK. The housing wealth effect has risen substantially after 1988 as it has become easier to borrow against housing wealth. JEL Classification: E21, E32, C22
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Date of creation: Nov 2009
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Other versions of this item:
- Slacalek Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-37, October.
- Jiri Slacalek, 2006. "What Drives Personal Consumption?: The Role of Housing and Financial Wealth," Discussion Papers of DIW Berlin 647, DIW Berlin, German Institute for Economic Research.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-CBA-2009-12-11 (Central Banking)
- NEP-MAC-2009-12-11 (Macroeconomics)
- NEP-URE-2009-12-11 (Urban & Real Estate Economics)
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