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The relationship between stock prices, house prices and consumption in OECD

Alexander Ludwig and Torsten Sløk ()
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Torsten Sløk: OECD, Postal: Paris

No 04-12, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper analyzes the relationship between stock prices, house prices and consumption using data for 16 OECD countries. The panel data analysis suggests that the long-run responsiveness of consumption to permanent changes in stock prices is higher for countries with a market-based financial system than for countries with a bank-based financial system. Splitting the sample into the 1980s and 1990s further shows an increased sensitivity in the 1990's of consumption to permanent changes in stock prices for both countries with bank-based financial systems as well as countries with market-based financial systems. The relationship between changes in consumption and changes in house prices is positive for the second sample period across all specifications and financial systems.

Pages: 23 pages
Date: 2004-03-04
New Economics Papers: this item is included in nep-mac and nep-ure
Note: This paper is a significant revision of our 2002 IMF working paper, Ludwig and Sløk (2002). We are especially
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