Housing wealth effect in emerging economies

Alessio Ciarlone

Emerging Markets Review, 2011, vol. 12, issue 4, 399-417

Abstract: In this paper I estimate the impact of changes in real and financial wealth on private consumption for a panel of 17 emerging economies from Asia and Central and Eastern Europe. Households' consumption, income and the two measures of real and financial wealth – proxied by house and stock market prices – are found to be difference-stationary and co-integrated; by means of recent econometric techniques for heterogeneous panels, i.e. the pooled mean group estimator, inference is drawn about the long- and short-run relationships between the variables of interest. The main result of the analysis shows that both real and financial wealth positively affect households' consumption in the long-run, with the elasticity of housing wealth being larger than that of stock market wealth. Moreover, there is also a significant short-run adjustment from income, stock prices and house prices on consumption, i.e. consumption adjusts to its long-run relationship with lags. When the model is run for the two groups of countries separately, the long-run impact of an increase (decrease) in house prices is generally higher in Central and Eastern European economies with respect to Asian ones, which make them more vulnerable to further adverse housing market developments.

Keywords: House prices; Wealth effects; Emerging markets; Panel co-integration; Pooled mean group estimator (search for similar items in EconPapers)
JEL-codes: C23 D12 E20 E21 E32 E44 R21 R31 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:12:y:2011:i:4:p:399-417

DOI: 10.1016/j.ememar.2011.06.003

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