Consumption, Financial and Real Wealth in the G-5 (revised December 2004)

Pub. Date
15 May, 2004
Pub. Type

Financial assets are generally chosen for encapsulating wealth effects in empirical work on aggregate consumption, but there is growing interest in tangible wealth, notably housing, as a potential determinant. We estimate consumption functions for the G-5, country-by-country and on a panel basis, which encapsulate roles for both tangible and financial wealth. Results suggest that tangible wealth plays a distinctive role in the determination of consumption in the short- and long-run. We also detect a marked negative effect of real interest rates. Results are of particular relevance to monetary policy, as well as being of importance for modelling and forecasting.