IDEAS home Printed from https://ideas.repec.org/p/dnb/staffs/101.html
   My bibliography  Save this paper

Is Wealth Increasingly Driving Consuption?

Author

Listed:
  • Tamim Bayoumi
  • Hali Edison

Abstract

This paper estimates the wealth effect on consumption of both equity and housing wealth, Using data across 16 industrial countries differentiated by type of financial system and examining trends in these wealth effects over time. The three main conclusions are found and their policy implications discussed: that the impact of a $1 increase in housing wealth on consumption is higher than the equivalent increase in equity wealth; countries with market- based financial systems have larger effects from changes in equity wealth than those with bank-based financial systems; and that the size of the wealth effects appears to be rising over time, probably reflecting financial deregulation.

Suggested Citation

  • Tamim Bayoumi & Hali Edison, 2003. "Is Wealth Increasingly Driving Consuption?," DNB Staff Reports (discontinued) 101, Netherlands Central Bank.
  • Handle: RePEc:dnb:staffs:101
    as

    Download full text from publisher

    File URL: https://www.dnb.nl/binaries/sr101_tcm46-146878.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bayoumi, Tamim & Haacker, Markus, 2002. "It's Not What You Make, It's How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries," CEPR Discussion Papers 3555, C.E.P.R. Discussion Papers.
    2. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-34.
    3. Laurence Boone & Nathalie Girouard & Isabelle Wanner, 2001. "Financial Market Liberalisation, Wealth and Consumption," OECD Economics Department Working Papers 308, OECD Publishing.
    4. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 151-182, July.
    5. Karen E. Dynan & Dean M. Maki, 2001. "Does stock market wealth matter for consumption?," Finance and Economics Discussion Series 2001-23, Board of Governors of the Federal Reserve System (U.S.).
    6. Alexander Ludwig & Torsten M Sloek, 2002. "The Impact of Changes in Stock Prices and House Priceson Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
    7. Nathalie Girouard & Sveinbjörn Blöndal, 2001. "House Prices and Economic Activity," OECD Economics Department Working Papers 279, OECD Publishing.
    8. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
    9. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, pages 398-428.
    10. Laurence Boone & Claude Giorno & Pete Richardson, 1998. "Stock Market Fluctuations and Consumption Behaviour: Some Recent Evidence," OECD Economics Department Working Papers 208, OECD Publishing.
    11. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, pages 99-118.
    12. Dean M. Maki & Michael G. Palumbo, 2001. "Disentangling the wealth effect: a cohort analysis of household saving in the 1990s," Finance and Economics Discussion Series 2001-21, Board of Governors of the Federal Reserve System (U.S.).
    13. Frederic S. Mishkin, 2001. "The Transmission Mechanism and the Role of Asset Prices in Monetary Policy," NBER Working Papers 8617, National Bureau of Economic Research, Inc.
    14. Edison, Hali & Slok, Torsten, 2002. "Stock Market Wealth Effects and the New Economy: A Cross-Country Study," International Finance, Wiley Blackwell, vol. 5(1), pages 1-22, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luigi Guiso & Monica Paiella & Ignazio Visco, 2005. "Do capital gains affect consumption? Estimates of wealth effects from Italian households� behavior," Temi di discussione (Economic working papers) 555, Bank of Italy, Economic Research and International Relations Area.
    2. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    3. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    4. Jan Kakes & Jan Willem Van Den End, 2004. "Do stock prices affect house prices? Evidence for the Netherlands," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 741-744.
    5. Tao Sun & L. Effie Psalida, 2009. "Spillovers to Emerging Equity Markets; An Econometric Assessment," IMF Working Papers 09/111, International Monetary Fund.
    6. Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, June.
    7. Thomas R Michl, 2008. "Tinbergen Rules the Taylor Rule," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 34(3), pages 293-309.
    8. Greg Hannsgen, 2007. "A Random Walk Down Maple Lane? A Critique of Neoclassical Consumption Theory with Reference to Housing Wealth," Review of Political Economy, Taylor & Francis Journals, pages 1-20.
    9. Vincent Labhard & Gabriel Sterne & Chris Young, 2005. "Wealth and consumption: an assessment of the international evidence," Bank of England working papers 275, Bank of England.
    10. Frederic S. Mishkin, 2007. "Housing and the monetary transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 359-413.
    11. Cussen, Mary & Kelly, John & Phelan, Gillian, 2008. "The Impact of Asset Price Trends on Irish Households," Quarterly Bulletin Articles, Central Bank of Ireland, pages 70-84, July.
    12. Fernandez-Corugedo, Emilio & Price, Simon & Blake, Andrew P., 2007. "The dynamics of aggregate UK consumers' non-durable expenditure," Economic Modelling, Elsevier, vol. 24(3), pages 453-469, May.
    13. Maxime Desmarais-Tremblay & François Vaillancourt, 2011. "Le bilan des particuliers au Canada : évolution et analyse," CIRANO Project Reports 2011rp-17, CIRANO.
    14. Herrendorf, Berthold & Teixeira, Arilton, 2003. "Monopoly Rights can Reduce Income Big Time," CEPR Discussion Papers 3854, C.E.P.R. Discussion Papers.
    15. David G. Mayes & Matti Virén, 2004. "Asymmetries in the Euro area economy," Macroeconomics 0404024, EconWPA.
    16. Dalina Amonhaemanon, 2015. "The Impact of Stock Price and Real Estate Price Shocks on Consumption: The Thai Experience," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(1), pages 137-148, January.

    More about this item

    Keywords

    Wealth effects; household wealth; consumption; stock ownership; housing;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dnb:staffs:101. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet). General contact details of provider: http://edirc.repec.org/data/dnbgvnl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.