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The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models

Author

Listed:
  • Christian Dreger
  • Hans-Eggert Reimers
Abstract
We explore the long and short run relationship between private consumption, disposable income and housing and financial wealth approximated by price indices for a panel of industrialized countries. Consumption, income and wealth are cointegrated in their common, but not in their idiosyncratic components. This stresses the relevance of inter-national spillovers to explain aggregate consumption behaviour. The cointegrating vector is robust and in line with the life cycle permanent income hypothesis. The in-come elasticity does not differ from unity, and wealth elasticities are within a range of 2 to 5 percent. According to the error correction mechanism, consumption could not be interpreted as a weakly exogenous series.

Suggested Citation

  • Christian Dreger & Hans-Eggert Reimers, 2009. "The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models," Discussion Papers of DIW Berlin 872, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp872
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.96430.de/dp872.pdf
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Ahec Šonje, Amina & Čeh Časni, Anita & Vizek, Maruška, 2014. "The effect of housing and stock market wealth on consumption in emerging and developed countries," Economic Systems, Elsevier, vol. 38(3), pages 433-450.
    2. Riccardo De Bonis & Andrea Silvestrini, 2012. "The effects of financial and real wealth on consumption: new evidence from OECD countries," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 409-425, March.
    3. Ciarlone, Alessio, 2011. "Housing wealth effect in emerging economies," Emerging Markets Review, Elsevier, vol. 12(4), pages 399-417.
    4. Christian Dreger & Konstantin Arkadievich Kholodilin, 2013. "Forecasting Private Consumption by Consumer Surveys," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(1), pages 10-18, January.
    5. Belke, Ansgar & Dobnik, Frauke & Dreger, Christian, 2011. "Energy consumption and economic growth: New insights into the cointegration relationship," Energy Economics, Elsevier, vol. 33(5), pages 782-789, September.
    6. Christian Dreger & Konstantin A. Kholodilin, 2011. "An Early Warning System to Predict the House Price Bubbles," Discussion Papers of DIW Berlin 1142, DIW Berlin, German Institute for Economic Research.
    7. Ansgar Belke & Christian Dreger & Frauke de Haan, 2010. "Energy Consumption and Economic Growth – New Insights into the Cointegration Relationship," Ruhr Economic Papers 0190, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    8. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
    9. repec:zbw:rwirep:0190 is not listed on IDEAS
    10. Dreger, Christian & Kholodilin, Konstantin A., 2013. "An early warning system to predict speculative house price bubbles," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-26.

    More about this item

    Keywords

    Permanent income hypothesis; panel cointegration; wealth effects;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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