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International Wealth Effects

Author

Listed:
  • Jiri Slacalek
Abstract
This paper presents a detailed investigation of the wealth effect for 16 industrial countries using the recently proposed technique that exploits the sluggishness of consumption growth. I argue that, compared to the widespread cointegration-based methodology, the approach I apply has better theoretical foundations and is more immune to parameter instability. Empirically, this new technique implies smaller magnitude of the wealth effect in the G-8 countries and larger size of the income effect. I also document that the wealth effect tends to be larger in countries with more developed financial markets and has decreased substantially in the last twenty years.

Suggested Citation

  • Jiri Slacalek, 2006. "International Wealth Effects," Discussion Papers of DIW Berlin 596, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp596
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    References listed on IDEAS

    as
    1. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    2. Pietro Catte & Nathalie Girouard & Robert Price & Christophe André, 2004. "Housing Markets, Wealth and the Business Cycle," OECD Economics Department Working Papers 394, OECD Publishing.
    3. Christopher D. Carroll & Jiri Slacalek & Martin Sommer, 2011. "International Evidence on Sticky Consumption Growth," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1135-1145, November.
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    17. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2008. "Consumption, wealth and business cycles in Germany," Empirical Economics, Springer, vol. 34(3), pages 451-476, June.
    18. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    19. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
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    21. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
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    23. Jeremy B. Rudd & Karl Whelan, 2002. "A note on the cointegration of consumption, income, and wealth," Finance and Economics Discussion Series 2002-53, Board of Governors of the Federal Reserve System (U.S.).
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ingrid Groessl & Ulrich Fritsche, 2006. "The Store-of-Value-Function of Money as a Component of Household Risk Management," Macroeconomics and Finance Series 200606, University of Hamburg, Department of Socioeconomics.
    2. Jiri Slacalek, 2006. "International Wealth Effects," Discussion Papers of DIW Berlin 596, DIW Berlin, German Institute for Economic Research.
    3. Jesus Crespo Cuaresma & Jozef Kubala & Kristina Petrikova, 2018. "Does income inequality affect aggregate consumption? Revisiting the evidence," Empirical Economics, Springer, vol. 55(2), pages 905-912, September.
    4. Ramiz Rahmanov, 2013. "Stock Market Wealth Effects in Emerging Economies of Eastern Europe: Evidence from Russia and Ukraine," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 5(1).
    5. Catriona Purfield & Hiroko Oura & Charles Kramer & Andreas Jobst, 2008. "Asian equity markets: growth, opportunities, and challenges," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(2), pages 227-248.
    6. Tao Sun & Ms. L. Effie Psalida, 2009. "Spillovers to Emerging Equity Markets: An Econometric Assessment," IMF Working Papers 2009/111, International Monetary Fund.
    7. Miss Catriona Purfield, 2007. "India: Asset Prices and the Macroeconomy," IMF Working Papers 2007/221, International Monetary Fund.
    8. Arrondel, L. & Savignac, F. & Tracol, K., 2011. "Wealth Effects on Consumption Plans: French Households in the Crisis," Working papers 344, Banque de France.

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    More about this item

    Keywords

    Wealth effect; income effect; consumption dynamics; sticky information;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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