Bindu, Samuel Chigusiwa, Lloyd Mazambani, D. Muchabaiwa, L. Mudavanhu, V.
Year of Publication:
[Journal:] International Journal of Economic Sciences and Applied Research [ISSN:] 1791-3373 [Volume:] 4 [Year:] 2011 [Issue:] 2 [Pages:] 125-142
The study seeks to examine stock market wealth effects on private non-durable consumption for Zimbabwean households using quarterly data from 1994(1) to 2008(2). The bounds testing approach to cointegration is employed to test the long run relationship between stock market wealth and consumption. An autoregressive distributed lag model (ARDL) analysis is implemented to examine the relationship among the variables both in the short-run and the long run. The empirical findings suggest significant wealth effects for Zimbabwe, a developing country. This contradicts the commonly held view that LDCs should have insignificant wealth effect since the financial system is still underdeveloped. The dynamic short run error correction model also shows a speedy convergence to long run equilibrium.
wealth effects consumption dynamics income effect convergence