Euro Area Private Consumption: Is There A Role For Housing Wealth Effects

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Executive Summary

This paper adds to the literature on wealth effects on consumption by disentangling financial wealth effects from housing wealth effects for the euro area. The authors use two macro-datasets for the estimations, one on the aggregate euro area for the period 1980-2006, and one on the individual euro area countries from 1995-2006, using panel data techniques. The impact of all wealth variables on euro area consumption is significant and positive in most specifications for both datasets. The Marginal Propensity to Consume (MPC) out of financial wealth is roughly in line with the literature, with 2.4 to 3.6 cents per euro of financial wealth spent on consumption according to the estimations with euro area aggregate data.

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