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Title:What Drives Personal Consumption? The Role of Housing and Financial Wealth PDF Logo
Authors:Slacalek, Jirka
Issue Date:2006
Series/Report no.:DIW-Diskussionspapiere 647
Abstract:I construct a new dataset with financial and housing wealth in 16 countries and investigate the effect of wealth on consumption. The baseline estimation method based on the sluggishness of consumption growth implies that the long-run marginal propensity to consume out of total wealth averaged across countries is 5 cents. I find substantial heterogeneity in the wealth effects: the individual country estimates typically lie between 0 and 10 cents. The wealth effects are more powerful in market-based, Anglo?Saxon and non euro area economies. The effect of housing wealth is somewhat smaller than that of financial wealth for most countries, but not the US and the UK. The housing wealth effect has risen substantially after 1988 as it has become easier to borrow against housing wealth.
Subjects:housing prices
wealth effect
consumption dynamics
portfolio choice
JEL:C22
E32
E21
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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