The Long-run Determinants of Consumption in the Euro Area: Is there a Role for Uncertainty?

This paper examines the long-run (cointegrating) relationship between real consumption, real disposable income, real net financial wealth, real housing wealth, and uncertainties in future income (income uncertainty) and the rate of return on accumulated financial wealth (capital uncertainty) for a p...

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Bibliographic Details
Published inEkonomický časopis Vol. 66; no. 10; pp. 969 - 986
Main Author Dajcman, Silvo
Format Journal Article
LanguageEnglish
Published Bratislava Ekonomický ústav SAV a Prognostický ústav SAV 01.01.2018
Institute of Economic Research of the SAS and Institute for Forecasting SAS (co-publisher)
Slovak Academy of Sciences, Institute of Economic Research
Subjects
Business Economy / Management
Consumers
Consumption
Disposable income
Eurozone
Foreign exchange markets
Government spending
Households
Housing
Marketing / Advertising
Securities markets
Socio-Economic Research
Sovereign debt
Studies
Supranational / Global Economy
Time series
Utility functions
Volatility
wealth
disposable income
consumption
euro area
uncertainty
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Summary:This paper examines the long-run (cointegrating) relationship between real consumption, real disposable income, real net financial wealth, real housing wealth, and uncertainties in future income (income uncertainty) and the rate of return on accumulated financial wealth (capital uncertainty) for a panel of 12 euro area countries. Using proxies for the unobservable housing wealth and income and capital uncertainty, we show that such a relationship does exist, but it is not homogenous for the euro area as a whole. Real disposable income and real net financial wealth are the main determinants of real consumption for the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) and non-PIIGS (Austria, Belgium, Finland, France, Germany, Netherlands, and Slovenia) euro areas. Income and capital uncertainties are negatively associated with real consumption, but only in the PIIGS euro area.
ISSN:0013-3035