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Wealth Effects on Consumption: Microeconometric Estimates from a New Survey of Household Finances

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  • Bover, Olympia

Abstract

This paper presents estimates of wealth effects on consumer spending using the first wave of a new survey of household finances (EFF 2002) that contains direct measures of asset holdings and consumption. A distinguishing feature of the EFF is the availability of such information from a representative sample subject to stratification by wealth. Furthermore we believe we are able to measure wealth effects due to precautionary motives only. This is confirmed by the estimated pattern of wealth effects across age groups. To control for the potential endogeneity of housing wealth, we exploit geographical house price variation and inheritance information in the EFF as instrumental variables. We focus on the effects of housing wealth, distinguishing between main and secondary housing, but also report OLS estimates of financial wealth effects. We find large and statistically significant housing wealth effects for prime age households. Overall, the largest wealth effects are for owner occupied housing, followed by secondary housing, with financial wealth effects being smaller and insignificant.

Suggested Citation

  • Bover, Olympia, 2006. "Wealth Effects on Consumption: Microeconometric Estimates from a New Survey of Household Finances," CEPR Discussion Papers 5874, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5874
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hans G. Bloemen, 2016. "Private wealth and job exit at older age: a random effects model," Empirical Economics, Springer, vol. 51(2), pages 763-807, September.
    2. repec:onb:oenbmp:y:2017:i:q2/17:b:2 is not listed on IDEAS
    3. R. Calcagno & E. Fornero & M. Rossi, 2009. "The Effect of House Prices on Household Consumption in Italy," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 284-300, October.
    4. Juan Contreras & Joseph Nichols, 2009. "Consumption Responses to Permanent and Transitory Shocks to House Appreciation: Working Paper 2009-05," Working Papers 41876, Congressional Budget Office.
    5. Juan Contreras & Joseph B. Nichols, 2010. "Consumption responses to permanent and transitory shocks to house appreciation," Finance and Economics Discussion Series 2010-32, Board of Governors of the Federal Reserve System (U.S.).
    6. Fredrik Carlsen & Jostein Grytten & Irene Skau, 2011. "Physician response to fee changes: using inheritance as a quasi-natural experiment," Applied Economics, Taylor & Francis Journals, vol. 43(15), pages 1913-1922.

    More about this item

    Keywords

    house prices; precautionary savings; two-stage least squares matching; wealth effects;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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