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Industry bubbles and the cross‐sectional variation of expected consumption growth

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  • Javier Rojo‐Suárez
  • Ana Belén Alonso‐Conde
  • Rubén Lago‐Balsalobre

Abstract

We study the relationship between the domestic consumption growth and industry bubbles, under the assumption that, at a global level, the bubbles created by productive countries totally or partially offset the bubbles created by unproductive countries. Using a methodology based on a time‐varying parameter vector autoregression, we define the expected consumption growth as a function of the exposure to bubbly episodes and the price of bubbles, among other variables. We test the model for nine European countries. Our results show that the variation of construction and technology bubbles has a strong explanatory power for the domestic consumption growth.

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  • Javier Rojo‐Suárez & Ana Belén Alonso‐Conde & Rubén Lago‐Balsalobre, 2021. "Industry bubbles and the cross‐sectional variation of expected consumption growth," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 1047-1055, September.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:3:p:1047-1055
    DOI: 10.1111/irfi.12301
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