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International Wealth Effects

Jiri Slacalek ()

No 596, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper presents a detailed investigation of the wealth effect for 16 industrial countries using the recently proposed technique that exploits the sluggishness of consumption growth. I argue that, compared to the widespread cointegration-based methodology, the approach I apply has better theoretical foundations and is more immune to parameter instability. Empirically, this new technique implies smaller magnitude of the wealth effect in the G-8 countries and larger size of the income effect. I also document that the wealth effect tends to be larger in countries with more developed financial markets and has decreased substantially in the last twenty years.

Keywords: Wealth effect; income effect; consumption dynamics; sticky information (search for similar items in EconPapers)
JEL-codes: E21 E32 C22 (search for similar items in EconPapers)
Pages: 21 p.
Date: 2006
New Economics Papers: this item is included in nep-eec and nep-mac
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