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The effects of financial and real wealth on consumption: new evidence from OECD countries

In this article we present new estimates of the effect of household financial and real wealth on consumption. The analysis refers to 11 Organization for Economic Co-operation and Developoment (OECD) countries and takes into account quarterly data from 1997 to 2008. Unlike most of the previous literature on European countries, we measure financial wealth using quarterly harmonized data on household financial assets and liabilities, which have been gathered from the flow of funds. For comparison, we also employ as a proxy for financial wealth national share price indices. We rely on standard static panel and single-country level autoregressive distributed lag estimations. Furthermore, we implement a recent econometric approach that allows for more flexible assumptions in the nonstationary panel framework under consideration. Our results show that both net financial wealth and real wealth have a positive effect on consumption. Overall, the influence of net financial assets is stronger than that of real assets.