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Version Date:
Feb 2009
Abstract:
We explore the long and short run relationship between private consumption, disposable income and housing and financial wealth approximated by price indices for a panel of industrialized countries. Consumption, income and wealth are cointegrated in their common, but not in their idiosyncratic components. This stresses the relevance of inter-national spillovers to explain aggregate consumption behaviour. The cointegrating vector is robust and in line with the life cycle permanent income hypothesis. The in-come elasticity does not differ from unity, and wealth elasticities are within a range of 2 to 5 percent. According to the error correction mechanism, consumption could not be interpreted as a weakly exogenous series.
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Data file:
Data Description:
CR consumption, YR disposable income, CED consumer expenditures, CPI, U unemployment rate, hp house prices, sp share prices
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Code Description:
Have to run under EViews, comments included