Residential and stock market effects on consumption across Europe

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Publication Details

Author list: Pacheco, L.M., & Barata, J.M.
Publisher: Taylor & Francis (Routledge): SSH Titles
Publication year: 2005
Volume number: 5
Issue number: 3
Start page: 255
End page: 278
Number of pages: 24
ISSN: 1461-6718
Languages: English-Great Britain (EN-GB)


The aim of this paper is to explain private consumption as a function of
income and wealth with data from European Union countries. To examine
how the developments in housing and stock markets may have affected
consumption behaviour, we adopt two econometric procedures. First, we
use the Stock-Watson procedure to account for wealth effects on
consumption over the long run. Second, through an error-correction model
we measure wealth effects on consumption over the short run. We found
significant albeit mixed values for the long-run elasticities of
consumption with respect to real residential and equity prices. We also
found strong evidence that consumption exhibits error-correction
behaviour in the short run, with the value of the error-correction term
signifying that household consumption takes several quarters to
completely respond to changes in the markets. © 2005 Taylor &


Economics, Management


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