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Wealth Effects On Consumption: Evidence From The Euro Area

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Executive Summary

This paper estimates the wealth effects on consumption in the euro area as a whole. The author shows that: financial wealth effects are relatively large and statistically significant; housing wealth effects are virtually nil and not significant; consumption growth exhibits strong persistence and responds sluggishly to shocks; and the immediate response of consumption to wealth is substantially different from the long-run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans.

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