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How important are wealth effects on consumption in Canada?

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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 wealth—financial and housing—have 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. Quelle est l’importance des effets de richesse sur la consommation au Canada? On estime la propension marginale à consommer au Canada à partir de données sur la richesse financière et immobilière. On utilise le cadre conceptuel de Carroll et al. (2011) qui construit sur la viscosité observée des données de consommation utilisées. On construit les estimations et les inférences en utilisant des méthodes qui sont robustes au plan de l’identification. Les résultats supportent la stratégie générale du modèle, mais il existe aussi des différences importantes dans le statut d’identification des équations économétriques considérées. Sur la base de la spécification la plus informative, on découvre que les deux types de richesse – financière et immobilière – ont des effets significatifs au Canada, et que la première a un plus grand impact que la seconde. Une simple extension de ce modèle qui tient aussi compte des conditions de crédit qui ne portent pas sur les prix montre que la richesse immobilière peut être pertinente seulement dans les périodes d’accès facile au crédit. Finalement, les résultats supportent la proposition qu’il y a forte viscosité relative dans la croissance de la consommation au Canada.

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  • Maral Kichian & Milana Mihic, 2018. "How important are wealth effects on consumption in Canada?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(3), pages 784-798, August.
    • Handle: RePEc:wly:canjec:v:51:y:2018:i:3:p:784-798
    DOI: 10.1111/caje.12338
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    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.

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