The impacts of recent financial and housing market developments on consumption are also quantified. It provides some estimates of the sensitivity of consumption to various forms of wealth and tests whether these sensitivities have changed over time. This paper analyses the roles of household financial wealth and housing wealth across G7 countries (with the exception of Germany), in determining private consumption. These developments have led to renewed interest in the impact of asset prices on consumption and overall demand.

By contrast, house prices have continued to increase, rising more rapidly than the general price level in several countries. There is also evidence supporting the presence of the indirect channel of wealth effect.Īfter the buoyancy of stock markets in the late nineties, share prices have generally trended downwards since 2001. 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. 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. It is also analyzed the potential differences of these effects originated by different categories of property of stocks (direct versus indirect property). In this work, the role of stock market as a determinant of private consumption is analyzed, namely, by the consideration of wealth effects. Recent fluctuations of financial markets, especially, stock markets fluctuations, have revived the interest concerning the dynamics of real economic activity, namely, of private consumption.

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