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Does Housing Wealth Affect Consumption? The Case of Cyprus

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  • Nektarios Michail

    (Central Bank of Cyprus)

  • George Thucydides

    (Central Bank of Cyprus)

Abstract

In this paper we investigate the relationship between housing wealth and consumption in Cyprus. To this end, we employ a vector error correction mechanism to examine interlinkages among house prices, private consumption, disposable income, financial assets and financial liabilities. We find that house prices affect private consumption, particularly in the short term, albeit to a lesser extent than similar studies for other countries. Financial liabilities are found to be important for consumption behaviour, while financial assets of Cypriot households appear to not affect significantly their consumption. Distinguishing consumption between durable and non-durable goods, we find that an increase in house prices boosts consumption of durables, while non-durables are found to register an insignificant effect.

Suggested Citation

  • Nektarios Michail & George Thucydides, 2018. "Does Housing Wealth Affect Consumption? The Case of Cyprus," Working Papers 2018-3, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2018-3
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    Cited by:

    1. Christos S. Savva & Nektarios A. Michail, 2020. "What Determines Bank Lending Standards in Cyprus?," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 14(1), pages 16-26, June.
    2. Nektarios A. Michail & George Thucydides, 2019. "The impact of foreign demand on Cyprus house prices," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 13(2), pages 48-71, December.

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    More about this item

    Keywords

    House prices; consumption; VECM analysis;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • 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
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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