Consumption and wealth: new evidence from Italy

Riccardo De Bonis, Danilo Liberati, John Muellbauer and Concetta Rondinelli

No 1304, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper estimates a consumption function for Italy. In addition to permanent income, housing wealth, the interest rate on household loans and an index of credit conditions, our model introduces household net worth split into liquid and illiquid assets. The consumption dynamics are examined by using financial accounts and real national accounts in a Vector Error Correction Model (VECM), estimated from 1975 to 2017. The results show that the marginal propensity to consume out of liquid financial assets – mainly deposits and bonds – is positive and statistically significant, and greater than that for illiquid assets (mainly unquoted shares and insurance and pension assets); we also find that housing wealth has a smaller and significant impact on consumption. As expected, permanent income accounts for a large fraction of consumption, while the effect of the interest rate is negative.

Keywords: liquid and illiquid assets; permanent income; credit conditions (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 E51 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-fdg and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1304_20

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