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Motivation

“The Effects of Household Financial and Real Wealth on Consumption: New Evidence from OECD Countries” Riccardo De Bonis and Andrea Silvestrini (Bank of Italy) OECD Working Party on Financial Statistics, Paris, 2-4 November 2009. Motivation.

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Motivation

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  1. “The Effects of Household Financial and Real Wealth on Consumption: New Evidence from OECD Countries”Riccardo De Bonis and Andrea Silvestrini(Bank of Italy)OECD Working Party on Financial Statistics, Paris, 2-4 November 2009

  2. Motivation • Very large literature on the effect of changes in wealth on consumption which dates back to the 60s • Revived interest on the wealth effect due to the financial turmoil and the severe drop in house prices (and also in share prices until March 2009) • As a consequence, governments, central banks and academics are trying to evaluate potential macro implications of swings in financial and real wealth

  3. Motivation A frequently asked question • What matters more for consumption: financial or real wealth?

  4. Outline • Data • Estimation results • Conclusions

  5. 1. Data • We study the effect of changes in household net financial and real wealth on consumption • In our dataset we have 11 countries: AT, BE, FI, FR, GE, IT, NL, PT, SP, the UK and the US • Data collected for a period ranging from 1997-Q4 to 2008-Q1 • We selected countries for which both financial and real assets are available

  6. 1. Data (follows) • Financial assets: we employed the quarterly financial accounts for the euro area countries (AT, BE, FI, FR, GE, IT, NL, PT, SP) • For the US and the UK we used the national financial accounts • Financial assets include deposits, securities other than shares, quoted shares, mutual fund units, and insurance technical reserves • We did not take into account unquoted shares and other equity in the econometric exercises

  7. 1. Data (follows)

  8. 1. Data (follows) • Real assets (i.e. non financial assets): we chose to focus on dwellings • We used the OECD dataset for some countries; for 4 countries (SP, PT, AT, FI) we resorted to statistics kindly provided by NCBs • Household real wealth data are less harmonized than financial assets statistics • The OECD has a competitive advantage in collecting data on real assets

  9. 1. Data (follows)

  10. 2. Estimation results • We apply different estimation methods • We measure the marginal propensity to consume out of financial and real wealth: which is the increase of consumption following an increase of one euro in financial and real wealth ?

  11. 2. Estimation results (follows)

  12. 3. Conclusions • Net financial wealth and real wealth positively influence household consumption • The estimate of the marginal propensity to consume from net financial wealth is larger than the marginal propensity to consume from real wealth • Indeed the marginal propensity to consume out of net financial wealth is around 2.5-5 cents per euro • The marginal propensity to consume out of real wealth is between 0.5 and 2.5 cents per euro of additional wealth

  13. 3. Conclusions (follows) • Our findings have to be treated cautiously, as the whole examination is based on only 12 years of quarterly data for 11 OECD countries • Other variables must be taken into account: demographic structure; distributional measures; interest rates; unemployment • We plan to extend the analysis to other countries: we are mainly interested in statistics on real assets, while financial wealth data are more easily available

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