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Consumption, wealth and business cycles in Germany


Hamburg, Britta; Hoffmann, Mathias; Keller, Joachim (2008). Consumption, wealth and business cycles in Germany. Empirical Economics, 34(3):451-476.

Abstract

This paper studies the long-run relationship between consumption, asset wealth and income - the consumption-wealth ratio - based on German data from 1980 to 2003. We find that departures from this long-run relationship
mainly predict adjustments in income. The German consumption-wealth ratio also contains considerable forecasting power for a range of business cycle indicators, including the unemployment rate. This finding is in contrast to earlier studies for some of the Anglo-Saxon economies that have shown that the consumption-wealth ratio reverts to its long-run mean mainly through subsequent adjustments in asset prices. While the German consumption
wealth ratio contains little information about future changes in German asset prices, we report that the U.S. consumption-wealth ratio has considerable forecasting power for the German stock market. One explanation of these findings is that in Germany - due to structural differences in the financial and pension systems - the share of publicly traded equity in aggregate household wealth is much smaller than in the Anglo-Saxon countries. We discuss the implications of our results for the measurement of a potential wealth effect on consumption.

Abstract

This paper studies the long-run relationship between consumption, asset wealth and income - the consumption-wealth ratio - based on German data from 1980 to 2003. We find that departures from this long-run relationship
mainly predict adjustments in income. The German consumption-wealth ratio also contains considerable forecasting power for a range of business cycle indicators, including the unemployment rate. This finding is in contrast to earlier studies for some of the Anglo-Saxon economies that have shown that the consumption-wealth ratio reverts to its long-run mean mainly through subsequent adjustments in asset prices. While the German consumption
wealth ratio contains little information about future changes in German asset prices, we report that the U.S. consumption-wealth ratio has considerable forecasting power for the German stock market. One explanation of these findings is that in Germany - due to structural differences in the financial and pension systems - the share of publicly traded equity in aggregate household wealth is much smaller than in the Anglo-Saxon countries. We discuss the implications of our results for the measurement of a potential wealth effect on consumption.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:June 2008
Deposited On:29 Dec 2008 10:08
Last Modified:18 Feb 2018 10:08
Publisher:Springer
ISSN:0377-7332
Additional Information:The original publication is available at www.springerlink.com
OA Status:Green
Publisher DOI:https://doi.org/10.1007/s00181-007-0130-9

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