 Wealth Effects in Europe: A Tale of Two Countries (Italy and the United Kingdom)Sònia Muñoz No 2006/030, IMF Working Papers from International Monetary Fund Abstract: This paper investigates the increasing exposure of European households to risky financial assets and the consequent impact on the economy. I analyze household data for Italy and the United Kingdom, countries that differ dramatically in their financial structure and capital markets. I estimate an endogenous switching model with bivariate switching to overcome two important obstacles in this line of research, namely, the consumption Capital Asset Pricing Model Puzzle and the excess sensitivity puzzle. The results show that there are wealth effects in both countries. I find some evidence of liquidity constraints only in Italy and habit formation exclusively in the United Kingdom. Keywords: WP; consumption function; monetary policy; Wealth effects; consumption behavior; household portfolio; switching regressions; selectivity models; European capital markets; liquidity constraint; wealth effect; risky assets; transmission mechanism; life-cycle model; risk asset puzzle; utility function; smoothing consumption; consumption growth; Consumption; Income; Stocks; Liquidity; Capital markets; Europe; consumption capital asset pricing model puzzle; consumption function equation; selection equation; Asset prices (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2006/030 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.