Nonlinear responses of consumption to wealth, income, and interest rate shocks

Coskun Y. , Apergis N., Coskun E. A.

EMPIRICAL ECONOMICS, 2022 (Journal Indexed in SSCI) identifier identifier identifier

  • Publication Type: Article / Article
  • Publication Date: 2022
  • Doi Number: 10.1007/s00181-021-02171-8
  • Title of Journal : EMPIRICAL ECONOMICS
  • Keywords: Consumption asymmetry, Wealth effect heterogeneity, Behavioural wealth effect, STAR family models, Nonlinear impulse response functions, STOCK-MARKET, HOUSE PRICES, FINANCIAL WEALTH, CYCLE, TIME, CONSTRAINTS, BANDWAGON, DYNAMICS, IMPACT


Nonlinear adjustments of consumption to housing prices, stock prices, income, and interest rates were investigated by employing panel data from 25 countries, spanning the period 2000 to 2016. This is the first study which STAR family models and nonlinear impulse response functions based on the local projections employed alternatively. We present three main pieces of evidence: (1) housing prices, stock prices, interest rates, and income exposures of consumption show time-varying and asymmetric behaviours across all countries, (2) housing wealth effects show stronger persistency and are generally larger than financial wealth effects in most of the countries, and (3) time-varying housing and financial wealth effects are high (low) during expansionary (recessionary) periods across all countries. We suggest to consider both monetary and fiscal policies, as well as the asymmetric and time-varying nature of house prices, stock prices, income, and interest rates on the top of any potential impact of the level of transition in these variables.