Financial Liberalisation, Consumption and Wealth Effects in 7 OECD countries

Publication date: 7 May 2007 | Publication type: Journal article/book/chapter | Theme: Britain & Finance, Macroeconomics | NIESR Author(s): Barrell, R; Davis, P | Journal: Scottish Journal of Political Economy No. 2 Vol. 54

We estimate the impact of financial liberalisation on consumption in seven major industrial countries, and find a marked shift in behaviour, notably a decline in short-run income elasticities and a rise in short-run wealth and interest rate elasticities. A corollary is that consumption equations estimated over both pre- and post-liberalisation regimes may be misleading, and either a form of testing as presented here or a shortening of the sample period may be appropriate for accurate forecasting and simulation.