Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia

Nikola Dvornak and Marion Kohler
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Nikola Dvornak: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper addresses the question of how changes in stock market wealth and housing wealth affect consumption expenditure in Australia. We approach the problem using a panel of Australian states, for which we construct data on housing and stock market wealth. We estimate the link between consumption and the components of wealth using panel-data estimation techniques, including fixed-effects instrumental variable and panel DOLS estimators. Unlike previous studies, we find that both housing wealth and stock market wealth have a significant effect on Australian consumption. We estimate that a permanent increase in households’ stock market wealth of one dollar increases annual consumption by 6 to 9 cents in the long run while a permanent increase in housing wealth of one dollar is estimated to increase long-run annual consumption by around 3 cents. However, given that households’ housing assets are more than three times as large as stock market assets, our estimates imply that a one per cent increase in housing wealth has an effect on aggregate consumption that is at least as large as that of a one per cent increase in stock market wealth.

Keywords: consumption; housing wealth; stock market wealth; panel data (search for similar items in EconPapers)
JEL-codes: E21 E44 R31 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (81)

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Journal Article: Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2003-07

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