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Assessing financial and housing wealth effects through the lens of a nonlinear framework

Author

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  • Fredj Jawadi

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, UEVE - Université d'Évry-Val-d'Essonne, LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - TEM - Télécom Ecole de Management)

  • Richard Soparnot

    (ESSCA - Ecole Supérieure des Sciences Commerciales d'Angers)

  • Ricardo M. Sousa

    (Universidade do Minho = University of Minho [Braga], LSE - London School of Economics and Political Science)

Abstract

This paper examines the effects of wealth on consumption for the US, the UK and the Euro area using a smooth-transition regression (STR) model. We find evidence of an asymmetric and time-varying relationship between consumption and wealth. Additionally, our model tracks consumption patterns reasonably well during periods of economic downturn, financial instability and housing market corrections. While wealth effects are not significant in the Euro area, they are statistically significant and time-varying in the US and the UK. Interestingly, changes in housing wealth are source of switching between regimes in the US.

Suggested Citation

  • Fredj Jawadi & Richard Soparnot & Ricardo M. Sousa, 2017. "Assessing financial and housing wealth effects through the lens of a nonlinear framework," Post-Print hal-01650524, HAL.
    • Handle: RePEc:hal:journl:hal-01650524
    DOI: 10.1016/j.ribaf.2014.11.004
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    Cited by:

    1. Ruben Tarne & Dirk Bezemer & Thomas Theobald, 2021. "The Effect of borrower-specific Loan-to-Value policies on household debt, wealth inequality and consumption volatility," IMK Working Paper 212-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Rudan Wang & Bruce Morley & Javier Ordóñez, 2016. "The Taylor Rule, Wealth Effects and the Exchange Rate," Review of International Economics, Wiley Blackwell, vol. 24(2), pages 282-301, May.
    3. Gabe de Bondt & Arne Gieseck & Pablo Herrero & Zivile Zekaite, 2021. "Euro Area Income and Wealth Effects: Aggregation Issues," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(6), pages 1454-1474, December.
    4. Tarne, Ruben & Bezemer, Dirk & Theobald, Thomas, 2022. "The effect of borrower-specific loan-to-value policies on household debt, wealth inequality and consumption volatility: An agent-based analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    5. Yener Coskun & Nicholas Apergis & Esra Alp Coskun, 2022. "Nonlinear responses of consumption to wealth, income, and interest rate shocks," Empirical Economics, Springer, vol. 63(3), pages 1293-1335, September.
    6. Lou, Jun & Wong, Tat Wing & Fung, Ka Wai Terence & Shaende, Jonas J. Nazimoff, 2021. "Stock and bond joint pricing, consumption surplus, and inflation news," Research in International Business and Finance, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Consumption; Housing wealth; Financial wealth; Nonlinearity; Asymmetry;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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