Residential and stock market effects on consumption across Europe.

• Autor(a) principal: Pacheco, Luís Miguel
• Data de Publicação: 2005
• Outros Autores: Barata, José Martins
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/11328/836
• topic: Housing prices; Asset prices; Wealth effects; Consumption; European Union; Dynamic ordinary least squares; Error-correction models

The aim of this paper is to explain private consumption as a function of income and wealth with data from European Union countries. To examine how the developments in housing and stock markets may have affected consumption behaviour, we adopt two econo- metric procedures. First, we use the Stock–Watson procedure to account for wealth effects on consumption over the long run. Second, through an error-correction model we measure wealth effects on consumption over the short run. We found significant albeit mixed values for the long-run elasticities of consumption with respect to real residential and equity prices. We also found strong evidence that consumption exhibits error-correction behaviour in the short run, with the value of the error-correction term signifying that household consumption takes several quarters to completely respond to changes in the markets.