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

The long run relationship between private consumption and wealth: common and idiosyncratic effects

Contents:

Author Info

  • Dreger, Christian
  • Reimers, Hans-Eggert

Abstract

We investigate the long run relationship between private consumption, disposable income and wealth approximated by equity and house price indices for a panel of 15 industrialized countries. Consumption, income and wealth are cointegrated in their common components. The impact of house prices exceeds the effect arising from equity wealth. The long run vector is broadly in line with the life cycle permanent income hypothesis, if house prices are allowed to enter the relationship. At the idiosyncratic level, a long run equilibrium is detected between consumption and income, i.e. the wealth variable can be excluded. The income elasticity in the idiosyncratic relationship is significantly less than unity. Hence, the presence of wealth effects in consumption equations arises from the international integration of asset markets and points to the relevance of risk sharing activities of agents. Without sufficient opportunities, an increase in national saving rates would be expected, leading to a lower path of private consumption expenditures. --

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/10419/43850/1/64379395X.pdf
Download Restriction: no

Bibliographic Info

Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 295.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:euvwdp:295

Contact details of provider:
Postal: Grosse Scharrnstrasse 59, 15230 Frankfurt (Oder)
Phone: +49 (0)335 5534 2387
Fax: +49 (0)335 5534 2516
Email:
Web page: http://www.wiwi.euv-frankfurt-o.de/en/index.html
More information through EDIRC

Related research

Keywords: permanent income hypothesis; panel cointegration; wealth effects;

Other versions of this item:

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. Karl E. Case & John M. Quigley & Robert J. Shiller, 2001. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1335, Cowles Foundation for Research in Economics, Yale University.
  2. Bajari, Patrick & Benkard, C. Lanier & Krainer, John, 2005. "House prices and consumer welfare," Journal of Urban Economics, Elsevier, vol. 58(3), pages 474-487, November.
  3. Alexander Ludwig & Torsten Sløk, 2004. "The relationship between stock prices, house prices and consumption in OECD countries," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 04044, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  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. 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, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
  6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  7. James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers, York University, Department of Economics 1996_07, York University, Department of Economics.
  8. Anindya Banerjee & Josep Lluis Carrion-i-Silvestre, 2011. "Cointegration in Panel Data with Breaks and Cross-section Dependence," Discussion Papers, Department of Economics, University of Birmingham 11-25, Department of Economics, University of Birmingham.
  9. Palumbo, Michael & Rudd, Jeremy & Whelan, Karl, 2002. "On the Relationships Between Real Consumption, Income, and Wealth," Research Technical Papers 4/RT/02, Central Bank of Ireland.
  10. Emilio Fernandez-Corugedo & Simon Price & Andrew Blake, 2003. "The dynamics of consumers' expenditure: the UK consumption ECM redux," Bank of England working papers, Bank of England 204, Bank of England.
  11. Banerjee, A. & Marcellino, M. & Osbat, C., 2000. "Some Cautions on the Use of Panel Methods for Integrated Series of Macro-economic Data," Economics Working Papers, European University Institute eco2000/20, European University Institute.
  12. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2008. "Consumption, wealth and business cycles in Germany," Empirical Economics, Springer, Springer, vol. 34(3), pages 451-476, June.
  13. Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
  14. Muellbauer, John, 2008. "Housing, Credit and Consumer Expenditure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6782, C.E.P.R. Discussion Papers.
  15. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Testing for PPP: Should We Use Panel Methods?," Working Papers 186, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  16. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 04-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  17. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  18. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers, Department of Economics, Williams College 2000-02, Department of Economics, Williams College.
  19. Vincent Labhard & Gabriel Sterne & Chris Young, 2005. "Wealth and consumption: an assessment of the international evidence," Bank of England working papers, Bank of England 275, Bank of England.
  20. Jushan Bai & Serena Ng, 2001. "A Panic Attack on Unit Roots and Cointegration," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 469, The Johns Hopkins University,Department of Economics.
  21. Nelson C. Mark & Masao Ogaki & Donggyu Sul, 2003. "Dynamic Seemingly Unrelated Cointegrating Regression," NBER Technical Working Papers 0292, National Bureau of Economic Research, Inc.
  22. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(2), pages 99-118, Spring.
  23. Hanno Lustig & Stijn Van Nieuwerburgh, 2003. "Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perpective," NBER Working Papers 9959, National Bureau of Economic Research, Inc.
  24. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 191-221, January.
  25. 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.
  26. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 535, The Johns Hopkins University,Department of Economics.
  27. Alvin Tan & Graham Voss, 2000. "Consumption and Wealth," RBA Research Discussion Papers, Reserve Bank of Australia rdp2000-09, Reserve Bank of Australia.
  28. Ralf BRUEGGEMANN & Helmut LUETKEPOHL, 2004. "Practical Problems with Reduced Rank ML Estimators for Cointegration Parameters and a Simple Alternative," Economics Working Papers, European University Institute ECO2004/20, European University Institute.
  29. Christian Gengenbach & Franz C. Palm & Jean-Pierre Urbain, 2006. "Cointegration Testing in Panels with Common Factors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 683-719, December.
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. Ansgar Belke & Christian Dreger & Richard Ochmann, 2012. "Do Wealthier Households Save More? The Impact of the Demographic Factor," ROME Working Papers, ROME Network 201203, ROME Network.
  2. Nicholas Apergis & Beatrice D. Simo-Kengne & Rangan Gupta, 2013. "The Long-Run Relationship between Consumption, House Prices and Stock Prices in South Africa: Evidence from Provincial-Level Data," Working Papers 201326, University of Pretoria, Department of Economics.

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:euvwdp:295. 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.