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

  • Riccardo De Bonis


    (Bank of Italy)

  • Andrea Silvestrini


    (Bank of Italy)

In this paper we present new estimates of the effect of households� financial and real wealth on consumption. The analysis makes reference to eleven 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 households� financial assets and liabilities, which have been gleaned from the flow of funds. For comparison, we also employ national share price indices as a proxy for financial wealth. We rely on 1) standard static panel and 2) single-country level autoregressive distributed lag estimations. Furthermore, we implement a recent econometric approach that allows for more flexible assumptions in the non-stationary 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.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 837.

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Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bdi:wptemi:td_837_11
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  1. Karl Whelan & Filippo Altissimo & Evaggelia Georgiou & Teresa Sastre & Maria Teresa Valderrama & Gabriel Sterne & Marc Stocker & Mark Weth & Alpo Willman, 2005. "Wealth and asset price effects on economic activity," Open Access publications 10197/210, School of Economics, University College Dublin.
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  9. Joseph P. Byrne & E. Philip Davis, 2003. "Disaggregate Wealth and Aggregate Consumption: an Investigation of Empirical Relationships for the G7," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(2), pages 197-220, 05.
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  11. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers 2223, C.E.P.R. Discussion Papers.
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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  15. Christian Dreger & Hans-Eggert Reimers, 2009. "The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models," Discussion Papers of DIW Berlin 872, DIW Berlin, German Institute for Economic Research.
  16. Kaddour Hadri & Rolf Larsson, 2005. "Testing for stationarity in heterogeneous panel data where the time dimension is finite," Econometrics Journal, Royal Economic Society, vol. 8(1), pages 55-69, 03.
  17. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
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