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How important are wealth effects on consumption in Canada?

Author

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  • Maral Kichian
  • Milana Mihic

Abstract

We estimate the marginal propensity to consume from financial and housing wealth in Canada. The modelling framework of Carroll et al. (2011) that builds on the observed stickiness in consumption data is used. Estimations and inferences are conducted using identification-robust methods. The results provide support for the overall modelling strategy, but there are also important differences in the identification status of the econometric equations considered. Based on the most informative specification, we find that both types of wealthfinancial and housinghave significant effects in Canada and that the former has a greater effect than the latter. A simple extension of the model that also accounts for non-price credit conditions shows that housing wealth may be relevant only during periods of easier access to credit. Finally, we find support for relatively high stickiness in consumption growth in Canada.

Suggested Citation

  • Maral Kichian & Milana Mihic, 2018. "How important are wealth effects on consumption in Canada?," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 784-798, August.
    • Handle: RePEc:cje:issued:v:51:y:2018:i:3:p:784-798
    DOI: 10.1111/caje.12338
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    Cited by:

    1. Konstantina Manou & Panagiotis Palaios & Evangelia Papapetrou, 2019. "Housing wealth, household debt and financial assets: are there implications for consumption?," Working Papers 263, Bank of Greece.

    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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