Does housing wealth affect private consumption in European post-transition countries? Evidence from linear and threshold models

Amina Ahec �onje, Anita Ceh Casni and Maruška Vizek
Authors registered in the RePEc Author Service: Amina Ahec Šonje

Post-Communist Economies, 2012, vol. 24, issue 1, 73-85

Abstract: This article analyses the relationship between housing wealth and consumption for four European post-transition economies: Bulgaria, Croatia, Estonia and the Czech Republic. We use a vector error correction model and a threshold error correction model in order to asses the long-run and the short-run responsiveness of consumption to permanent changes in housing wealth. We find evidence supporting the existence of the housing wealth effect in all four countries, the strength of which is comparable with developed countries' wealth effect. In Bulgaria, Croatia and Estonia the response of consumption to housing wealth changes is characterised by threshold effects, while in the Czech Republic the wealth effect is detected only in the linear framework. The error correction model estimates suggest aggregate consumption adjusts to deviations from the long-run equilibrium; however, in countries where the wealth effect is characterised by threshold effects this adjustment process is partial and takes place when consumption is below levels warranted by the fundamentals. We also find evidence of relatively strong consumption persistence in three of the four countries.

Date: 2012
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Citations: View citations in EconPapers (15)

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DOI: 10.1080/14631377.2012.647629

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