Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia
AbstractThis paper addresses the question of how changes in stock market wealth and housing wealth affect consumption expenditure in Australia. We approach the problem using a panel of Australian states, for which we construct data on housing and stock market wealth. We estimate the link between consumption and the components of wealth using panel-data estimation techniques, including fixed-effects instrumental variable and panel DOLS estimators. Unlike previous studies, we find that both housing wealth and stock market wealth have a significant effect on Australian consumption. We estimate that a permanent increase in households’ stock market wealth of one dollar increases annual consumption by 6 to 9 cents in the long run while a permanent increase in housing wealth of one dollar is estimated to increase long-run annual consumption by around 3 cents. However, given that households’ housing assets are more than three times as large as stock market assets, our estimates imply that a one per cent increase in housing wealth has an effect on aggregate consumption that is at least as large as that of a one per cent increase in stock market wealth.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2003-07.
Date of creation: Jul 2003
Date of revision:
Other versions of this item:
- Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
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