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Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data

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  • Carlos Caceres

Abstract

This paper analyzes the existence of “wealth effects” derived from net equity (in the form of housing, financial assets, and total net worth) on consumption. The study uses longitudinal household-level data?from the Panel Study of Income Dynamics (PSID) ?covering about 7,000-9,000 households in the U.S., with the estimations carried over the period 1999-2017. Overall, wealth effects are found to be relatively large and significant for housing wealth, but less so for other types of wealth, including stocks. Furthermore, the analysis shows how these estimated marginal propensities to consume (MPC) from wealth are closely linked to household characteristics, including income and demographic factors. Finally, underlying structural changes in household characteristics point to potentially lower aggregate MPCs from wealth going forward.

Suggested Citation

  • Carlos Caceres, 2019. "Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data," IMF Working Papers 2019/115, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/115
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    2. Manisha Chakrabarty & Subhankar Mukherjee, 2022. "Financial Inclusion and Household Welfare: An Entropy-Based Consumption Diversification Approach," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(3), pages 1486-1521, June.
    3. Karolis Bielskis & Andrius Ciginas, 2020. "Household Wealth and Finances. Results for Households in Lithuania for 2017," Bank of Lithuania Discussion Paper Series 19, Bank of Lithuania.
    4. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.

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