The International Wealth Channel: A Global Error-Correcting Analysis

Nils Holinski () and Robert Vermeulen

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper analyzes the empirical link between asset prices, consumption and the trade balance using a global macroeconometric model developed by Pesaran, Schuermann, and Weiner (2004). The model is estimated for 29 countries with quarterly data over the period 1981Q1 - 2006Q4. Motivated by increasing international _nancial and real integration, and pronounced cycles in stock and housing prices, we employ generalized impulse response functions for a group of _ve of the world's most industrialized countries and show that shocks to asset prices transmit into the trade balance. We refer to this transmission channel as the international wealth channel and _nd it to be present in the US, UK and, to a lesser extent, in France, but absent in Japan and Germany. More speci_cally, when we _nd the international wealth channel at work as stock price changes are transmitted through consumption into the trade balance, whereas housing price changes are transmitted through investment into the trade balance.

Keywords: trade balance; wealth effect; global imbalances; GVAR; international transmission (search for similar items in EconPapers)
JEL-codes: E21 F15 F41 G15 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: The international wealth channel: a global error-correcting analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:10-04

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