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The international wealth channel: a global error-correcting analysis


  • Nils Holinski
  • Robert Vermeulen



This article investigates empirically whether shocks to asset prices transmit into the trade balance through consumption and investment for a group of five of the world’s most industrialized countries. We refer to this transmission channel as the international wealth channel and estimate a GVAR model including 29 countries with quarterly data over the period 1981Q1–2006Q4. Generalized impulse response functions show that after a negative stock price shock US and UK consumption decreases, followed by an improving trade balance. This pattern is also visible for France, but not for Germany and Japan. Stock price decreases are only associated with decreasing investment and an improving trade balance in the UK. For housing, we do find that a negative shock to UK housing prices decreases domestic investment and improves the trade balance. However, this pattern is not visible in the other countries. Finally, a domestic negative real exchange rate shock only has a significantly positive impact on the US trade balance. Copyright The Author(s) 2012

Suggested Citation

  • Nils Holinski & Robert Vermeulen, 2012. "The international wealth channel: a global error-correcting analysis," Empirical Economics, Springer, vol. 43(3), pages 985-1010, December.
  • Handle: RePEc:spr:empeco:v:43:y:2012:i:3:p:985-1010 DOI: 10.1007/s00181-011-0514-8

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    Cited by:

    1. Karsten Staehr & Robert Vermeulen, 2016. "How competitiveness shocks affect macroeconomic performance across euro area countries," DNB Working Papers 515, Netherlands Central Bank, Research Department.
    2. repec:eee:ecmode:v:64:y:2017:i:c:p:201-210 is not listed on IDEAS
    3. Bettendorf, Timo, 2017. "Investigating Global Imbalances: Empirical evidence from a GVAR approach," Economic Modelling, Elsevier, vol. 64(C), pages 201-210.
    4. Holinski Nils & Kool Clemens & Muysken Joan, 2009. "International Portfolio Balance – Modeling the External Adjustment Process," Research Memorandum 033, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    5. Anupam Nanda & Jia-Huey Yeh, 2016. "International Transmission Mechanisms and Contagion in Housing Markets," The World Economy, Wiley Blackwell, vol. 39(7), pages 1005-1024, July.

    More about this item


    Trade balance; Wealth effect; Global imbalances; GVAR; International transmission; E21; F15; F41; G15;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets


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