“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
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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
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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
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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
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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)
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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
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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
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