The long run relationship between private consumption and wealth: common and idiosyncratic effects

Wealth Effects on Household Final Consumption: Stock and Housing Market Channels

“…Existing studies, such as Dreger and Reimers (2012), Hui et al (2012), and Apergis et al (2014), may reveal a cointegration relationship between income, housing wealth, and stock wealth. Involving interest rates as the additional variable in the cointegration analysis, our study suggests an extension.…”

“…The authors found evidence that supports the presence of the long-run wealth effect in Bulgaria, Croatia, and the Czech Republic. By investigating the long-run relationship between private consumption, disposable income, and wealth approximated by equity and house price indices for a panel of 15 industrialized countries, Dreger and Reimers (2012) found that consumption, income, and wealth are cointegrated in their 5 As discussed by Jawadi and Sousa (2014), in the light of the nature of the variables and the complexity of the adjustments between consumption and wealth, the current state of the art has not provided unanimous conclusions yet. Apergis et al (2014) also noted that the wealth effect on consumption has been studied extensively, and that mixed conclusions have been reported depending on the sources of wealth and methodology used.…”

“…The ECB (2009) recommended the use of price data instead of the stock of wealth (Dreger and Reimers 2012).…”

“…Notwithstanding the many studies in the literature that employ labour income as the mainstream variable to explain household consumption, we use the net real per capita national disposable income due to the unavailability of labour income data for the selected observation period. However, it should be noted that several studies in the literature have employed disposable income instead of labour income as an explanatory variable for consumption, such as Ludwig and Sløk (2004) and Dreger and Reimers (2012). 10 Since data on consumption, share prices, and house prices are quarterly, whereas income and population series are annual, we use linear interpolation to acquire quarterly series on income and population.…”

“…Dreger and Reimers (2012) reported that, in addition to labour income, disposable income includes income received from wealth, like interest payments, profits, and dividends. Consistent labour income measures are not available in an international setting, as effective wages are not reported for some countries.…”