The Impact of Changes in Stock Prices and House Prices on Consumption in OECD Countries

37 Pages Posted: 30 Jan 2006

See all articles by Alexander Ludwig

Alexander Ludwig

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Goethe University Frankfurt

Torsten Sløk

Deutsche Bank, New York

Date Written: January 2002

Abstract

This paper quantifies the different impact of stock and house prices on consumption using data for 16 OECD countries. The analysis finds that the long-run impact of an increase in stock prices and house prices is in general higher in countries with a market-based financial system. The sensitivity of consumption to changes in stock wealth is about twice as large as the sensitivity to changes in housing wealth. Splitting the sample into the 1980s and 1990s shows that both countries with a market-based financial system and countries with a bank-based financial system moved toward a higher degree of responsiveness of consumption to changes in stock prices and house prices.

Keywords: Consumption, wealth effect, panel cointegration, asset prices

JEL Classification: E20, E44

Suggested Citation

Ludwig, Alexander and Sløk, Torsten Mikkel, The Impact of Changes in Stock Prices and House Prices on Consumption in OECD Countries (January 2002). IMF Working Paper No. 02/1, Available at SSRN: https://ssrn.com/abstract=879303

Alexander Ludwig (Contact Author)

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Torsten Mikkel Sløk

Deutsche Bank, New York ( email )

60 Wall Street
Mail Stop: NYC60-1815
New York, NY 10005
United States

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