The Importance of Wealth in the Consumption Function

Evans, Michael K.

doi:10.1086/259290

Cited by 19 publications

(6 citation statements)

References 3 publications

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“…Although few studies (such as Evans, 1967;Phang, 2004;Koivu, 2010) come to the conclusion that wealth should not be included in the consumption function either implicitly or explicitly, many of them have confirmed the strong comovement between house prices and consumption.…”

Section: Relevant Literaturementioning

confidence: 99%

The Impact of House Prices on Consumption in South Africa: Evidence from Provincial-Level Panel VARs

2013

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This paper provides an empirical analysis of the role of house prices in determining the dynamic behaviour of consumption in South Africa using a panel vector autoregression (PVAR) approach to provincial level panel data covering the period of 1996 to 2010. With the shocks being identified using the standard recursive identification scheme, we find that the response of consumption to house prices shock is positive, but short-lived. In addition, we find that a positive shock to house price growth has a positive and significant effect on consumption, while the negative impact of an anticipated house price decrease causes an insignificant reduction in consumption. This suggests that house prices exhibit an asymmetric effect on consumption, with the positive effect following an increase in house prices being dominant in magnitude in comparison to a decline in consumption resulting from a negative shock to house prices.

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Section: Relevant Literaturementioning

confidence: 99%

The Impact of House Prices on Consumption in South Africa: Evidence from Provincial-Level Panel VARs

2013

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“…Unfortunately, there are many possible tests of robustness aside from the standard ones, such as using in alternative regressions logs instead of natural numbers, yearly instead of quarterly data, and first differences instead of levels. For example,Evans (1967) showed that the Ball-Drake model. while confirmed by a time series regression in which the data are deflated by the GNP deflator, is rejected by the same data if they are deflated by the CPI instead.…”

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confidence: 99%

Economics as a Hard Science: Realistic Goal or Wishful Thinking?

Mayer¹

1980

Economic Inquiry

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“…Evans (1967) reaches the same result, although emphasizing that wealth can play an important role in the determination of consumption function in periods of economic depression.. 8 See, for example,Laumas and Ram (1982) that suggest that wealth is a variable that should be explicitly included on consumption function. The authors show, additionally, that wealth effects associated to nonhuman wealth are greater than those associated to human wealth.9 The authors consider four components of consumption: non-durable consumption goods, durable consumption goods, (with the exception of automobiles), durable consumption goods and services of consumption.…”

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confidence: 80%

Property of Stocks and Wealth Effects on Consumption

Sousa

2003

SSRN Journal

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Recent fluctuations of financial markets, especially, stock markets fluctuations, have revived the interest concerning the dynamics of real economic activity, namely, of private consumption. In this work, the role of stock market as a determinant of private consumption is analyzed, namely, by the consideration of wealth effects. It is also analyzed the potential differences of these effects originated by different categories of property of stocks (direct versus indirect property). Using a sample for the U. S. economy, in the period 1952:Q1 -2001:Q4, several long-run relationships were estimated, suggesting that wealth effects associated to direct property are about 3.5 times superior to those associated to indirect property. Short-run dynamics is analyzed with the estimation of a single equation, suggesting that consumption contemporaneously answers to changes in income and in wealth and that the adjustment to long-run component is very slow, which constitutes an indicator that consumers gradually change their behaviors, possibly, due to habit formation. There is also evidence supporting the presence of the indirect channel of wealth effect.

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The Importance of Wealth in the Consumption Function

Cited by 19 publications

References 3 publications

The Impact of House Prices on Consumption in South Africa: Evidence from Provincial-Level Panel VARs

The Impact of House Prices on Consumption in South Africa: Evidence from Provincial-Level Panel VARs

Economics as a Hard Science: Realistic Goal or Wishful Thinking?

Property of Stocks and Wealth Effects on Consumption

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