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The wealth-consumption channel: Evidence from a panel of Spanish households

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  • Trivin, Pedro

Abstract

Understanding the way households modify their consumption is essential to address the impact of different economic policies. In this paper we use a panel of Spanish households spanning the period 2002-2011 to study the marginal propensity to consume (MPC) out of wealth. The wealth effect is identified by exploiting within-household variations in a period of relatively large volatility in asset prices. We estimate a MPC out of total wealth of around 1 cent with changes in housing wealth affecting consumption more than other assets. We also find supporting evidence on the concavity of the consumption function, showing that the MPC is a decreasing function of net wealth. Finally, in line with theoretical models accounting for liquidity constraints and precautionary savings, our results confirm the existence of sign and magnitude asymmetries in the MPC.

Suggested Citation

  • Trivin, Pedro, 2020. "The wealth-consumption channel: Evidence from a panel of Spanish households," MPRA Paper 102079, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:102079
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    More about this item

    Keywords

    Marginal propensity to consume out of wealth; Wealth distribution; Household survey; Panel data.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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