Financial Liberalisation, Consumption and Wealth Effects in 7 OECD countries

We estimate the impact of financial liberalisation on consumption in 7 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.