Wealth Effects: The French Case

Valerie Chauvin, Olivier Damette
2010 Social Science Research Network  
This paper studies the relationship between consumption and wealth based on the concept of cointegration. The analysis focuses on French data over the 1987 -2006 period. This relationship is expressed in two ways: in terms of Marginal Propensity to Consume out of wealth (MPC) and in terms of Elasticity of consumption to wealth. Three concepts of consumption are investigated: total households consumption expenditure, consumption excluding financial services and consumption excluding durable
more » ... luding durable goods. Different estimators are also considered. Based on the MPC approach, when considered as permanent by households, an increase (decrease) in total wealth of one euro would lead to an increase (decrease) of 1 cent in total consumption. In terms of elasticity, an increase (decrease) of 10% in wealth would imply also a relatively small impact of 0.8 to 1.1% on consumption depending on the concept of consumption considered. In most cases, the effect of a change in financial wealth is bigger than of a change in housing wealth. The results indicate that the wealth effects in France are smaller than in the UK and US but close to what is observed in Italy. In addition, any deviation of the variables from their common trends is corrected at first by adjustments in disposable income in line with what has been uncovered by studies on Germany and consistent with the "saving for the rainy days" approach of Campbell (1987) . But our results contrast with the seminal study of Lettau and Ludvigson (2004) in the US where asset prices make the bulk of the adjustment. Résumé Alors que les prix des actifs ont considérablement baissé suiteà la crise des subprimes, cet articleétudie le lien entre la richesse et la consommation. Plus spécifiquement, nous estimons les effets richesse en France sur la période 1987-2006 par le bais des techniques de cointégration en séries temporelles. L'approche est comparative car les estimations sont réaliséesà partir des deux principales approches théoriques de la littérature sur les effets richesse, prennent en considération plusieurs concepts de consommation et reposent sur trois méthodes d'estimation différentes. Au final, les estimations sont stables et convergentes et les effets richesse en France apparaissent significatifs mais modérés. Mots-clés: consommation, effet de richesse, France Codes JEL: E21 E32 C22 G12 G20 2
doi:10.2139/ssrn.1619211 fatcat:7ja5hkd3w5h3fevgxzejnzpp3i