The Review of Economics and Statistics Vol. 99 No. 4 2017
Decomposing the Wealth Effect on Consumption
open access
Abstract
We decompose the wealth effect on consumption into two components. First, we distinguish between exogenous and endogenous wealth changes. Second, we distinguish between anticipated and unanticipated exogenous changes. We estimate the impact of exogenous components using data from the 2008—2010 panel of the Italian Survey of Household Income and Wealth. The wealth effect is about 3 cents per (unexpected) euro increase in wealth and driven by house price changes. The consumption response to anticipated changes in wealth is of similar magnitude and also driven by housing. We show that these findings are consistent with binding borrowing constraints.
- DOI
- 10.1162/rest_a_00629
- Volume
- 99
- Issue
- 4
- Pages
- 710-721
- Language
- en
- Sources
- openalex crossref