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The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models

  • Christian Dreger
  • Hans-Eggert Reimers

We explore the long and short run relationship between private consumption, disposable income and housing and financial wealth approximated by price indices for a panel of industrialized countries. Consumption, income and wealth are cointegrated in their common, but not in their idiosyncratic components. This stresses the relevance of inter-national spillovers to explain aggregate consumption behaviour. The cointegrating vector is robust and in line with the life cycle permanent income hypothesis. The in-come elasticity does not differ from unity, and wealth elasticities are within a range of 2 to 5 percent. According to the error correction mechanism, consumption could not be interpreted as a weakly exogenous series.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.96430.de/dp872.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 872.

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Length: 28 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwwpp:dp872
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