Seminar: "Nonlinearities of the wealth effect on consumption"
Tuesday May 6th, Malka de Castro Campos (UU) will present "Nonlinearities of the wealth effect on consumption".
Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague
Presentation: Malka de Castro Campos (UU)
Discussant: Frank van Es (CPB)
Registration: Please register by sending an email to email@example.com.
The estimation of the effects of housing and of financial wealth on consumption shows wide cross-country variation regarding the size of the marginal propensity to consume. Commonly given explanations are heterogeneity in the data and in the methodologies employed. Structural differences are also a plausible cause for cross-country variation. Yet, these differences are hardly explored in the literature. In this paper, we cover this shortcoming by introducing nonlinearities in the wealth effect that capture country structural differences. For a panel of 17 countries between 1995 and 2010, we investigate the role of the old dependency ratio, the volume of trade and the availability of domestic credit as possible moderators of the wealth effect. These three variables are proxies for time horizon, financial development and borrowing constraints, respectively. One of the criticisms on the estimation of the wealth effect focuses on the poor quality of the housing wealth data. By constructing our own measure of this variable, we attempt to exclude heterogeneities regarding data collection. We find positive significant marginal propensity to consume for financial wealth. The effect of the housing wealth is also significant but smaller in size. Specially in the short run, volume of trade and credit availability have a positive influence on the housing and financial wealth effects. The old dependency ratio negatively influences both wealth effects in the long run. However, in the short run, this moderating effect is negative for housing wealth and positive for financial wealth. Our findings are robust to various model specifications.
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