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Wealth Effects on Consumption in Switzerland

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  • Frank Schmid

Abstract

This paper studies the role of wealth fluctuations for aggregate consumption in Switzerland. In the long-run, wealth is found to have a significant effect on consumption. In the short-run, by contrast, the effects are less clear as consumption and wealth sometimes deviate persistently from equilibrium. Such deviations from equilibrium can have a duration of up to 3 years. If these equilibrium deviations are due to rapid wealth growth, Swiss consumers expand their consumption spending less than they could because they perceive large parts of these wealth gains as merely transitory. While they do not adapt to transitory wealth changes, they eventually react to the permanent wealth changes. On average, 80% of the variation in Swiss wealth that lasts for at least 24 quarters is permanent and it is exactly to those permanent lasting shocks that Swiss consumers react. Because consumption and wealth both react to the same permanent shocks, these results can be interpreted as evidence that consumers react less to changes in wealth per se than to changes in the business cycle.

Suggested Citation

  • Frank Schmid, 2013. "Wealth Effects on Consumption in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(I), pages 87-110, March.
  • Handle: RePEc:ses:arsjes:2013-i-4
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    Cited by:

    1. Gregor Bäurle & Rolf Scheufele, 2019. "Credit cycles and real activity: the Swiss case," Empirical Economics, Springer, vol. 56(6), pages 1939-1966, June.
    2. Alain Galli, 2017. "How Reliable are Cointegration-Based Estimates for Wealth Effects on Consumption? Evidence from Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 153(4), pages 437-479, October.
    3. Baselgia, Enea & Martínez, Isabel Z., 2021. "A Safe Harbor: Wealth-Income Ratios in Switzerland Over the 20th Century and the Role of Housing Prices," CEPR Discussion Papers 16660, C.E.P.R. Discussion Papers.
    4. Enea Baselgia & Isabel Martínez, 2020. "A Safe Harbor: Wealth-Income Ratios in Switzerland over the 20th Century and the Role of Housing Prices," World Inequality Lab Working Papers halshs-03130618, HAL.
    5. Ersi Athanassiou & Ekaterini Tsouma, 2017. "Financial and Housing Wealth Effects on Private Consumption: The Case of Greece," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 15(1), pages 63-86.

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    More about this item

    Keywords

    VECM model; wealth effects; private consumption; Switzerland;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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