How do consumers react to unanticipated wealth effects: evidence from Spain

Antonio Cutanda and Juan A. Sanchis-Llopis
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Antonio Cutanda: Universidad de Valencia, Valencia, Spain. ORCID number: 0000-0003-2066-4632
Juan A. Sanchis-Llopis: Universidad de Valencia and ERICES, Valencia, Spain. ORCID number: 0000-0001-9664-4668

No 2309, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: In this paper we estimate the housing wealth effect on non-durable consumption using data from the Spanish Survey on Household Finances (Encuesta Financiera de las Familias, SHF), for the period 2002-2017. We aim at identifying the effect of anticipated and unanticipated housing wealth changes on consumption with the sample of homeowners, following Jappelli and Pistaferri (2017). Our results lead us to conclude that there exists a strong housing wealth effect on consumption for the Spanish households. This provides evidence against the permanent income model. Further, we detect a high excess sensitivity of consumption to income reinforcing the above conclusion. Finally, by adding the mortgage growth rate to the estimated equation, we do not detect evidence that the Spanish data support the collateral channel hypothesis.

Keywords: Wealth effect on consumption; Subjective expectations; Collateral channel hypothesis; Instrumental variables; Panel data. (search for similar items in EconPapers)
JEL-codes: C23 C26 D12 D15 E21 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-eur and nep-ure
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