The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models

31 Pages Posted: 9 Jul 2009

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Hans-Eggert Reimers

Hochschule Wismar

Date Written: March 2009


We explore the long and short run relationship between private consumption, disposable income and housing and financial wealth approximated by price indices for a panel of industrialized countries. Consumption, income and wealth are cointegrated in their common, but not in their idiosyncratic components. This stresses the relevance of international spillovers to explain aggregate consumption behaviour. The cointegrating vector is robust and in line with the life cycle permanent income hypothesis. The income elasticity does not differ from unity, and wealth elasticities are within a range of 2 to 5 percent. According to the error correction mechanism, consumption could not be interpreted as a weakly exogenous series.

Keywords: permanent income hypothesis, panel cointegration, wealth effects

JEL Classification: C23, E21, E32, G15

Suggested Citation

Dreger, Christian and Reimers, Hans-Eggert, The Role of Asset Markets for Private Consumption: Evidence from Paneleconometric Models (March 2009). DIW Berlin Discussion Paper No. 872, Available at SSRN: or

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732

Hans-Eggert Reimers

Hochschule Wismar ( email )

FB Wirtschaft
Philipp-Mueller-Str. PF 1210
23952 Wismar
49-3841-753-601 (Phone)
49-3841-753-383 (Fax)

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