In this study, a housing wealth effect on personal consumption is assumed and tested on 16 selected European countries using an estimator developed for dynamic heterogeneous panel data analysis. Empirical estimates have shown that there is a long-run and a short-run housing wealth effect in analysed countries. The elasticity of real private consumption to changes in real disposable income has shown to be positive and statistically significant as well as the elasticity of consumption to changes in real housing wealth. Therefore, the research hypothesis of this paper of a statistically significant and positive long-term relationship between housing wealth and private consumption in the analysed countries was confirmed.
If the inline PDF is not rendering correctly, you can download the PDF file here.
1. Ahec Šonje A Čeh Časni A. Vizek M. (2012). Does housing wealth affect private consumption in European post transition countries? Evidence from linear and threshold models. Post-communist Economies Vol. 24 No. 1 pp. 73-85.
2. Aoki K. Proudman J. Vlieghe G. (2003). House prices consumption and monetary policy: a financial accelerator approach. Bank of England Working Paper Series No. 169 pp. 1-38.
3. Attanasio O. Blow L. Hamilton R. Leicester A. (2009). Booms and busts: consumption house prices and expectations. Economica Vol. 76 No. 301 pp. 20-50.
4. Babeau A. Sbano T. (2002). Household wealth in the national accounts of Europe the United States and Japan. OECD Statistics Working Papers No. 2003/02 pp. 1-39.
5. Breitung J. Pesaran M. H. (2005). Unit rots and cointegration in panels. In L. Matyas and P. Sevestre (eds.) The Econometrics of Panel data: Fundamentals and recent developments in theory and practice Springer pp. 279-322.
6. Bucks B. Pence K. (2005). Measuring Housing Wealth Federal Reserve Board of Governors Preliminary draft January 2005.
7. Choi I. (2001). Unit root tests for panel data. Journal of International Money and Finance Vol. 20 No. 2 pp. 249-272.
8. Ciarlone A. (2011). Housing wealth effect in emerging economies. Emerging Markets Review Vol. 12 No. 4 pp. 399-417.
9. Čeh Časni A. (2014). Housing Wealth Effect on Personal Consumption: Empirical Evidence from European Post-Transition Economies. Czech Journal of Economics and Finance Vol. 64 No. 5 pp. 392-406.
10. Čeh Časni A. Vizek M. (2014). Interactions between Real Estate and Equity markets: an Investigation of Linkages in Developed and Emerging Countries. Czech Journal of Economics and Finance Vol. 64 No. 2 pp. 100-119.
11. ECB (2009). Housing Wealth and Private Consumption in the Euro Area. Available at https://www.ecb.europa.eu/pub/pdf/other/mb200901_pp59-71en.pdf [13 December 2016].
12. Engle R. F. Granger C. W. J. (1987). Co-Integration and Error Correction: Representation Estimation and Testing. Econometrica Vol. 55 No. 2 pp. 251-276.
13. Friedman M. (1957). A theory of the Consumption function. Princeton University Press Princeton.
14. Galì J. (1990). Finite horizons life-cycle savings and time-series evidence on consumption. Journal of Monetary Economics Vol. 26 No. 3 pp. 433-452.
15. Hadri K. (2000). Testing for stationarity in heterogeneous panel data. Econometrics Journal Vol. 3 No. 2 pp. 148-161.
16. Iacoviello M. (2011). Housing wealth and consumption Bord of Governors of the Federal Reserve System. Available at https://www.federalreserve.gov/pubs/ifdp/2011/1027/ifdp1027.pdf [13 December 2016].
17. IFC Bulletin (2009). Measuring financial innovation and its impact. Available at http://www.bis.org/ifc/publ/ifcb31.pdf [13 December 2016].
18. Im K. S. Pesaran M. Shin Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics Vol. 115 No. 1 pp. 53-74.
19. Kao C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics Vol. 90 No. 1 pp. 1-44.
20. Labhard V. Sterne G. Young C. (2005). Wealth and consumption: an assessment of the international evidence Bank of England Working Paper Series No. 275 pp. 1-51.
21. Levin A. Chien-Fu L. Chia-Shang J. C. (2002). Unit root tests in panel data: asymptotic and fnite-sample properties. Journal of Econometrics Vol. 108 No. 1 pp. 1-24.
22. Ludwig A. Sløk T. (2004). The Relationship between Stock Prices House Prices and Consumption in OECD Countries. The B. E. Journal of Macroeconomics Vol. 4 No. 1 pp. 1-28.
23. Maddala G. S. Wu S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics Vol. 61 No. 51 pp. 631-652.
24. Mehra Y. P. (2001). The wealth effect in empirical life-cycle aggregate consumption equations. Federal Reserve Bank of Richmond Economic Quarterly Vol. 87 No. 2 pp. 45-68.
25. Paiella M. (2009). The Stock Market Housing and Consumer Spending: A Survey of the Evidence on Wealth Effects. Journal of Economic Surveys Vol. 23 No. 5 pp. 947-973.
26. Pedroni P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics Vol. 61 No. 51 pp. 653-670.
27. Pesaran H. Shin Y. Smith R. P. (1999). Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association Vol. 94 No. 446 pp. 621-634.
28. Westerlund J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistic Vol. 69 No. 6 pp. 709-748.