The Stock Market, Housing and Consumer Spending: A Survey of the Evidence on Wealth Effects

Paiella, Monica

doi:10.1111/j.1467-6419.2009.00595.x

Cited by 65 publications

(41 citation statements)

References 67 publications

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“…However while there is an extensive literature on the effects of property prices or housing wealth on consumption expenditures, (see the surveys by Cooper and Dynan (2016) and Paiella (2009)), there is much less on their effects on household debt. This paper refers to this argument as the housing boom hypothesis (HBH): home buyers take out larger mortgages relative to their income in the face of rapidly rising house prices.…”

Section: Introductionmentioning

confidence: 99%

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Stockhammer¹,

Wildauer

2018

RBE

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The past decades have witnessed a strong increase in household debt and high growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt ('keeping up with the Joneses'). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints and the prospect of future capital gains. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the financial deregulation hypothesis argues that deregulation of the financial sector boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 11 OECD countries (198011 OECD countries ( -2011. Results indicate that real estate prices and low interest rates were the most important drivers of household debt. In contrast the data does not support the expenditure cascades hypothesis as a general explanation of debt accumulation across OECD countries. Our results are consistent with the financial deregulation hypothesis, but its explanatory power for the 1995-2007 period is low.

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Section: Introductionmentioning

confidence: 99%

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Stockhammer¹,

Wildauer

2018

RBE

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“…The increase in stock market wealth can lead to the higher consumption either by households liquidating the appreciated stocks or by consuming the dividend stream that these assets generate, or by increasing the borrowing capacity of liquidity constrained households (Paiella, 2009). The following studies showed that the impact of stock wealth to be much more important than housing wealth to consumption, they are scattered in various countries.…”

Section: Review Of Empirical Studiesmentioning

confidence: 99%

The Impact of Stock Price and Real Estate Price Shocks on Consumption: The Thai Experience

Amonhaemanon¹

2014

International Journal of Financial Research

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This paper compares the effects of real house price and real stock price shocks on consumption decisions in Thailand over the period 1993 to 2014 using a Vector Autoregressive (VAR) approach. The sample comprises quarterly, seasonally adjusted Thai data on consumption, real house price and real stock price. The results indicate that disturbance originating from consumption itself caused the greatest variability to future consumption: it contributes up to 76.43 percent variability one quarter ahead, GDP shocks explain between 17 and 19 percent of the variance of consumption depending on the forecast horizons-with higher shares explained at longer forecast horizons. While, townhouse price shocks explain about 5 percent and single house price shocks explain about 0.47 to 0.51 percent of the variance of consumption, stock price shocks explain about 0.2 to 0.21 percent of the variance of consumption. To explaining variations of consumption, the housing market is more important than stock market for Thailand case.

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“…; an impressive recent survey of time series and micro-econometric evidence on wealth effects is provided by Paiella (2009), itself building on the equally excellent Poterba (2000). The studies most related to the present paper are those that provide evidence for Italy.…”

Section: Introductionmentioning

confidence: 99%

Wealth Effects and the Consumption of Italian Households in the Great Recession

2015

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We estimate marginal propensities to consume from wealth shocks for Italian households in the early part of the Great Recession. Large asset price shocks in 2008 underpin an IV estimator. A euro fall in risky financial wealth resulted in cuts in annual total (non-durable) consumption of 8.5-9 (5.5-5.7) cents. There is evidence of effects on food spending. Responses of total and nondurable spending to changes in housing wealth are 0.2 to 0.3 cents/euro. Point estimates of the effect of the financial wealth shock are larger if the youngest and/or oldest households are excluded. Results indicate that responses to the wealth shock were stronger for those who became pessimistic about the stock market, and for those owners of risky assets who also held mortgage debt. Counterfactuals indicate financial wealth effects were important (relative to other factors) for consumption falls in Italy in 2007/08.

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The Stock Market, Housing and Consumer Spending: A Survey of the Evidence on Wealth Effects

Cited by 65 publications

References 67 publications

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

The Impact of Stock Price and Real Estate Price Shocks on Consumption: The Thai Experience

Wealth Effects and the Consumption of Italian Households in the Great Recession

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