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Relationship Between Household Consumption and Disaggregated Wealth Components in OECD Countries: Panel Data Analysis for the Period 2010-2017

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  • Ahmet Hamdi Yanık

    (Istanbul University, Social Sciences Institute of Sciences, Department of Economics, Istanbul-Türkiye)

  • Ahmet İncekara

    (Istanbul University, Faculty of Economics, Department of Economics, Istanbul-Türkiye)

Abstract

Understanding household consumption behaviour and its impact on macroeconomic performance has long played an important role in policymaking. This study examines the empirical relationship between consumption, financial wealth, and housing wealth in OECD countries from 2010 to 2017. This study used short and balanced panel data sets covering 28 OECD countries over an eight-year period. Although most empirical research on wealth’s effects on consumption tends to focus on national borders, this study aims to assess the impact of these effects on an international scale and makes a valuable contribution to the existing literature in this area. Based on a thorough analysis of the relevant literature, it was decided that a consumption function based on the life-cycle hypothesis was very useful for this study. Based on this framework, three different panel data regression models were estimated, including one or more wealth components as explanatory variables. The results of the Hausman test show that random effect estimators can provide more effective estimates, while the Swamy test shows that heterogeneity in slope parameters should be taken into account. These tests indicate that the coefficients obtained using the augmented mean group estimator, which accounts for heterogeneity, are more reliable. The results show that marginal propensities to consume, calculated as the coefficient of elasticity, are 0.71 for disposable income, 0.04 for financial wealth, and 0.19 for housing wealth. These findings showed that housing wealth played a greater role than financial wealth in influencing OECD households’ consumption during the period analyzed. The inclusion of housing market dynamics in the consumption function may boost the model’s explanatory power, according to our findings revealing country-specific differences, but more research is required to confirm this.

Suggested Citation

  • Ahmet Hamdi Yanık & Ahmet İncekara, 2024. "Relationship Between Household Consumption and Disaggregated Wealth Components in OECD Countries: Panel Data Analysis for the Period 2010-2017," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 11(2), pages 370-382, July.
  • Handle: RePEc:ist:iujepr:v:11:y:2024:i:2:p:370-382
    DOI: 10.26650/JEPR1512206
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    References listed on IDEAS

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    More about this item

    Keywords

    Life-Cycle hypothesis; Household consumption; Financial wealth effect; Housing wealth effect; Panel data analysis JEL Classification : D12 ; D15 ; E21;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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