What Drives Personal Consumption? The Role of Housing and Financial Wealth

Jiri Slacalek

No 1117, Working Paper Series from European Central Bank

Abstract: I investigate the effect of wealth on consumption in a new dataset with financial and housing wealth from 16 countries. The baseline estimation method based on the sluggishness of consumption growth implies that the eventual (long-run) marginal propensity to consume out of total wealth is 5 cents (averaged across countries). While the wealth effects are quite strong—between 4 and 6 cents—in countries with more developed mortgage markets and in market-based, Anglo-Saxon and non euro area economies, consumption only barely reacts to wealth elsewhere. The effect of housing wealth is somewhat smaller than that of financial wealth for most countries, but not for the US and the UK. The housing wealth effect has risen substantially after 1988 as it has become easier to borrow against housing wealth. JEL Classification: E21, E32, C22

Keywords: consumption dynamics; housing prices; portfolio choice; wealth effect (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ure
Note: 1111765
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Citations: View citations in EconPapers (122)

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Related works:
Journal Article: What Drives Personal Consumption? The Role of Housing and Financial Wealth (2009)
Working Paper: What Drives Personal Consumption?: The Role of Housing and Financial Wealth (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091117

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