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How do consumers react to unanticipated wealth effects: evidence from Spain

Author

Listed:
  • Antonio Cutanda

    (Universidad de Valencia, Valencia, Spain. ORCID number: 0000-0003-2066-4632)

  • Juan A. Juan A. Sanchis-Llopis

    (Universidad de Valencia and ERICES, Valencia, Spain. ORCID number: 0000-0001-9664-4668)

Abstract

In this paper we estimate the housing wealth effect on non-durable consumption using data from the Spanish Survey on Household Finances (Encuesta Financiera de las Familias, SHF), for the period 2002-2017. We aim at identifying the effect of anticipated and unanticipated housing wealth changes on consumption with the sample of homeowners, following Jappelli and Pistaferri (2017). Our results lead us to conclude that there exists a strong housing wealth effect on consumption for the Spanish households. This provides evidence against the permanent income model. Further, we detect a high excess sensitivity of consumption to income reinforcing the above conclusion. Finally, by adding the mortgage growth rate to the estimated equation, we do not detect evidence that the Spanish data support the collateral channel hypothesis.

Suggested Citation

  • Antonio Cutanda & Juan A. Juan A. Sanchis-Llopis, 2023. "How do consumers react to unanticipated wealth effects: evidence from Spain," Working Papers 2309, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:2309
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    More about this item

    Keywords

    Wealth effect on consumption; Subjective expectations; Collateral channel hypothesis; Instrumental variables; Panel data.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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