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

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  • 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. --

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Bibliographic Info

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

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:3375

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

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Citations

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Cited by:
  1. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2005. "Consumption, Wealth and Business Cycles in Germany," CESifo Working Paper Series 1443, CESifo Group Munich.
  2. Eickmeier, Sandra, 2009. "Analyse der Übertragung US-amerikanischer Schocks auf Deutschland auf Basis eines FAVAR," Discussion Paper Series 1: Economic Studies 2009,35, Deutsche Bundesbank, Research Centre.
  3. 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.
  4. Jiri Slacalek, 2006. "What Drives Personal Consumption?: The Role of Housing and Financial Wealth," Discussion Papers of DIW Berlin 647, DIW Berlin, German Institute for Economic Research.
  5. Eickmeier, Sandra, 2009. "Analyse der Übertragung US-amerikanischer Schocks auf Deutschland auf Basis eines FAVAR," Working Papers 04/2009, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  6. Sandra Eickmeier, 2010. "Analyse der Uebertragung US-amerikanischer Schocks auf Deutschland auf Basis eines FAVAR," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(5), pages 571-600, October.

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