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The effects of financial and real wealth on consumption: new evidence from OECD countries

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  • Riccardo De Bonis
  • Andrea Silvestrini

Abstract

In this article we present new estimates of the effect of household financial and real wealth on consumption. The analysis refers to 11 Organization for Economic Co-operation and Developoment (OECD) countries and takes into account quarterly data from 1997 to 2008. Unlike most of the previous literature on European countries, we measure financial wealth using quarterly harmonized data on household financial assets and liabilities, which have been gathered from the flow of funds. For comparison, we also employ as a proxy for financial wealth national share price indices. We rely on standard static panel and single-country level autoregressive distributed lag estimations. Furthermore, we implement a recent econometric approach that allows for more flexible assumptions in the nonstationary panel framework under consideration. Our results show that both net financial wealth and real wealth have a positive effect on consumption. Overall, the influence of net financial assets is stronger than that of real assets.

Suggested Citation

  • Riccardo De Bonis & Andrea Silvestrini, 2012. "The effects of financial and real wealth on consumption: new evidence from OECD countries," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 409-425, March.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:5:p:409-425
    DOI: 10.1080/09603107.2011.613773
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    Cited by:

    1. Annalisa Cristini & Almudena Sevilla, 2014. "Do House Prices Affect Consumption? A Re-assessment of the Wealth Hypothesis," Economica, London School of Economics and Political Science, vol. 81(324), pages 601-625, October.
    2. Ahec Šonje, Amina & Čeh Časni, Anita & Vizek, Maruška, 2014. "The effect of housing and stock market wealth on consumption in emerging and developed countries," Economic Systems, Elsevier, vol. 38(3), pages 433-450.
    3. Luca Sessa, 2012. "Economic (in)stability under monetary targeting," Temi di discussione (Economic working papers) 858, Bank of Italy, Economic Research and International Relations Area.
    4. Riccardo De Bonis & Daniele Fano & Teresa Sbano, 2013. "Houshold Aggregate Wealth In The Main OECD Countries From 1980 To 2011: What Do The Data Tell Us?," Mo.Fi.R. Working Papers 82, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. repec:taf:rjapxx:v:21:y:2016:i:2:p:196-216 is not listed on IDEAS
    6. Gustafsson, Peter & Stockhammar, Pär & Österholm, Pär, 2016. "Macroeconomic effects of a decline in housing prices in Sweden," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 242-255.
    7. Merike Kukk, 2014. "Distinguishing the Components of Household Financial Wealth: the Impact of Liabilities on Assets in Euro Area Countries," Proceedings of International Academic Conferences 0100418, International Institute of Social and Economic Sciences.
    8. Swamy, Vighneswara, 2017. "Wealth Effects and Macroeconomic Dynamics – Evidence from Indian Economy," MPRA Paper 76836, University Library of Munich, Germany.
    9. Antonio Bassanetti & Concetta Rondinelli, 2013. "Italian households� opinions on the difficulty of saving," Questioni di Economia e Finanza (Occasional Papers) 147, Bank of Italy, Economic Research and International Relations Area.
    10. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
    11. Iwo Augustyński, 2016. "Skutki podniesienia kwoty wolnej od podatku od dochodów osobistych," Gospodarka Narodowa, Warsaw School of Economics, issue 1, pages 55-71.
    12. repec:seb:journl:v:15:y:2017:i:1:p:63-86 is not listed on IDEAS
    13. Muellbauer, John & Geiger, Felix & Rupprecht, Manuel, 2016. "The housing market, household portfolios and the German consumer," Working Paper Series 1904, European Central Bank.
    14. Hassan Gholipour Fereidouni & Reza Tajaddini, 2017. "Housing Wealth, Financial Wealth and Consumption Expenditure: The Role of Consumer Confidence," The Journal of Real Estate Finance and Economics, Springer, vol. 54(2), pages 216-236, February.
    15. Daniel H. Cooper & Karen E. Dynan, 2013. "Wealth shocks and macroeconomic dynamics," Public Policy Discussion Paper 13-4, Federal Reserve Bank of Boston.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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