Do Foreign Asset Holdings Affect Household Consumption?
AbstractScant attention has been paid in the literature concerning 'consumption wealth effects' to asset heterogeneity in terms of foreign and domestic asset holdings. Through extending the approach of Lettau and Ludvigson (2004).and Nitschka (2007), this study uncovers that whilst households tend to view innovations to domestic asset holdings as part of their permanent income, changes in the value of foreign equity holdings are largely characterised as temporary in nature and unrelated to household consumption decisions. This evidence complements existing work concerning 'valuation effects' by highlighting at a disaggregated level an important mechanism by which this phenomenon affects a fundamental macroeconomic aggregate, and also draws implications for trade balance outcomesKeywords: Valuation Effects, Household Consumption, Cointegration
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 19-2010.
Length: 32 pages
Date of creation: 02 Nov 2010
Date of revision:
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F39 - International Economics - - International Finance - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
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