Wealth Effects on Consumption - Evidence from the Euro Area
31 Pages Posted: 12 May 2009
Date Written: May 12, 2009
Abstract
This paper estimates the wealth effects on consumption in the euro area as a whole. I show that: (i) financial wealth effects are relatively large and statistically significant; (ii) housing wealth effects are virtually nil and not significant; (iii) consumption growth exhibits strong persistence and responds sluggishly to shocks; and (iv) the immediate response of consumption to wealth is substantially different from the long- run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans.
Keywords: consumption, housing wealth, financial wealth
JEL Classification: E21, E44, D12
Suggested Citation: Suggested Citation
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