Advanced Search
MyIDEAS: Login to save this paper or follow this series

Consumption, wealth and business cycles: why is Germany different?

Contents:

Author Info

  • Hamburg, Britta
  • Hoffmann, Mathias
  • Keller, Joachim

Abstract

This paper studies the long-run relationship between consumption, asset wealth and income – the consumption-wealth ratio – in Germany, based on data from 1980 to 2003. Earlier papers for the Anglo-Saxon economies have documented that departures of these three variables from their common trend signal future changes in asset prices. We find that for Germany they predict changes in income – the consumption wealth ratio predicts business cycles, not stock market cycles. Asset price changes are found to have virtually no effect on German consumption, both in the short as well as in the long-run. Conversely, German asset prices are predictable from the U.S. consumption-wealth ratio. We offer an explanation of these findings that emphasizes structural differences between the bank-based German financial system and the rather market-based Anglo-American system: stock ownership by private households is much less widespread in Germany than in the Anglo-Saxon economies and the share of publicly traded equity in household wealth is much smaller in Germany than in the U.S., the UK or Australia. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/19524/1/200516dkp.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,16.

as in new window
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:zbw:bubdp1:3375

Contact details of provider:
Postal: Postfach 10 06 02, 60006 Frankfurt
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Email:
Web page: http://www.bundesbank.de/
More information through EDIRC

Related research

Keywords: Wealth Effect on Consumption; Business Cycles; Monetary Policy Transmission; Financial Systems; Asset Price Predictability;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-86.
  2. Martin Lettau, 2001. "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 56(3), pages 815-849, 06.
  3. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 241-65, February.
  4. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
  5. Hoffmann, Mathias, 2001. "Long run recursive VAR models and QR decompositions," Economics Letters, Elsevier, Elsevier, vol. 73(1), pages 15-20, October.
  6. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  7. Jeremy Rudd & Karl Whelan, 2002. "A note on the cointegration of consumption, income, and wealth," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-53, Board of Governors of the Federal Reserve System (U.S.).
  8. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  9. Alvin Tan & Graham Voss, 2003. "Consumption and Wealth in Australia," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 79(244), pages 39-56, 03.
  10. Saikkonen, Pentti & Lutkepohl, Helmut, 2000. "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 18(4), pages 451-64, October.
  11. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(460), pages 1-26, January.
  12. Proietti, Tommaso, 1997. "Short-Run Dynamics in Cointegrated Systems," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(3), pages 405-22, August.
  13. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  14. Owen Lamont, . "Earnings and Expected Returns," CRSP working papers 345, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  15. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(1), pages 27-35, January.
  16. Hui Guo, 2001. "A simple model of limited stock market participation," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-47.
  17. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  18. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(2), pages 205-251, April.
  19. Becker, Sascha O. & Hoffmann, Mathias, 2006. "Intra- and international risk-sharing in the short run and the long run," European Economic Review, Elsevier, Elsevier, vol. 50(3), pages 777-806, April.
  20. Poterba, James M & Venti, Steven F & Wise, David A, 1998. "401(k) Plans and Future Patterns of Retirement Saving," American Economic Review, American Economic Association, American Economic Association, vol. 88(2), pages 179-84, May.
  21. repec:fth:harver:1435 is not listed on IDEAS
  22. Emilio Fernandez-Corugedo & Simon Price & Andrew Blake, 2003. "The dynamics of consumers' expenditure: the UK consumption ECM redux," Bank of England working papers 204, Bank of England.
  23. Lance A. Fisher & Graham M. Voss, 2004. "Consumption, Wealth and Expected Stock Returns in Australia," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 80(251), pages 359-372, December.
  24. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 783-820, July.
  25. Polkovnichenko, Valery, 2004. "Limited stock market participation and the equity premium," Finance Research Letters, Elsevier, Elsevier, vol. 1(1), pages 24-34, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eickmeier, Sandra, 2009. "Analyse der Ãœbertragung US-amerikanischer Schocks auf Deutschland auf Basis eines FAVAR," Discussion Paper Series 1: Economic Studies 2009,35, Deutsche Bundesbank, Research Centre.
  2. Slacalek Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 9(1), pages 1-37, October.
  3. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2005. "Consumption, Wealth and Business Cycles in Germany," CESifo Working Paper Series 1443, CESifo Group Munich.
  4. Thomas Nitschka, 2007. "International evidence for return predictability and the implications for long-run covariation of the G7 stock markets," IEW - Working Papers 338, Institute for Empirical Research in Economics - University of Zurich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp1:3375. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.