Discussion of the paper: "Banking Activities on Local Output ...
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 1 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
2 Motivation A frequently asked question What matters more for financial or real wealth? consumption: 3 Outline 1. Data 2. Estimation results 3. Conclusions 4
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 5 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 6 1. Data (follows) Financial wealth over household disposable income 7 6 5 4 3 2
AUSTRIA FINLAND GERMANY NETHERLANDS SPAIN USA 1 0 1997 1998 1999 2000
2001 2002 2003 2004 2005 BELGIUM FRANCE ITALY PORTUGAL UK 2006 2007
2008 7 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 8 1. Data (follows)
Real wealth over household disposable income 10 9 8 AUSTRIA FINLAND GERMANY NETHERLANDS SPAIN USA BELGIUM FRANCE ITALY PORTUGAL UK
7 6 5 4 3 2 1 0 1995 1996
1997 1998 1999 2000 2001 2002 2003 2004 2005
2006 2007 9 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 ? 10 2. Estimation results (follows) 11
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 12 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 13
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