Consumption and Wealth
Two remarkable features of the Australian economy over recent years have been strong growth in private consumption expenditure and household wealth. This paper examines the relationship between consumption and wealth in an effort to better understand aggregate consumption behaviour. We find a reasonably robust steady-state relationship between non-durables consumption, labour income and aggregate household wealth for the period 1988:Q4–1999:Q3. Based upon this relationship, an increase in per capita wealth of one dollar is eventually associated with a rise in annual non-durables consumption of approximately four cents. We also find that changes in both non-financial and financial assets have significant effects on consumption. Above-trend growth of wealth in recent years has contributed significantly to growth in consumption over this time. A further noteworthy result concerns the recent demutualisations and share floats in Australia; perhaps surprisingly, we find no evidence that these events had a significant effect on consumption growth. Finally, we place our results within the broader empirical literature and examine whether they are consistent with standard economic theories of consumption.
|Date of creation:||Dec 2000|
|Contact details of provider:|| Postal: GPO Box 3947, Sydney NSW 2001|
Web page: http://www.rba.gov.au/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martha Starr-McCluer, 2002.
"Stock Market Wealth and Consumer Spending,"
Western Economic Association International, vol. 40(1), pages 69-79, January.
- Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, December.
- John Shea, 1997.
"Instrument Relevance in Multivariate Linear Models: A Simple Measure,"
The Review of Economics and Statistics,
MIT Press, vol. 79(2), pages 348-352, May.
- John Shea, 1996. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," NBER Technical Working Papers 0193, National Bureau of Economic Research, Inc.
- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
- Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
- Modigliani, Franco, 1985.
"Life Cycle, Individual Thrift and the Wealth of Nations,"
Nobel Prize in Economics documents
1985-1, Nobel Prize Committee.
- Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
- Moosa, Imad A & Kennedy, Pauline, 1998. "Modelling Seasonality in the Australian Consumption Function," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 88-102, March.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, December.
- Olekalns, N, 1997.
"Has Financial Deregulation revived the Permanent Income/Life Cycle Hypothesis?,"
Department of Economics - Working Papers Series
564, The University of Melbourne.
- Nilss Olekalns, 1997. "Has Financial Deregulation Revived the Permanent Income/Life Cycle Hypothesis?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(2), pages 155-166.
- Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
- Richard H. Clarida, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 851-867.
- Robert E. Hall, 1981.
"Intertemporal Substitution in Consumption,"
NBER Working Papers
0720, National Bureau of Economic Research, Inc.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, December.
- John Y. Campbell & N. Gregory Mankiw, 1987.
"Permanent Income, Current Income, and Consumption,"
NBER Working Papers
2436, National Bureau of Economic Research, Inc.
- Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
- Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
- John Y. Campbell, 1986.
"Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis,"
NBER Working Papers
1805, National Bureau of Economic Research, Inc.
- Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
- Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp2000-09. 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: (Paula Drew)
If references are entirely missing, you can add them using this form.