The Influence of Stock Market and Housing Wealth on Consumption Expenditures in Transition Countries
We explore the link between stock market wealth, housing wealth and aggregate consumption for a sample of four European post-transition economies. We use Johansen co-integration, vector error correction models and impulse response functions in order to assess the long run and the short run responsiveness of consumption to permanent changes in both types of wealth. We find evidence that supports the presence of the long run wealth effect in Bulgaria, Croatia, and the Czech Republic. In Bulgaria only stock market wealth effect appears to matter, while in the other two countries both types of wealth effects are effective. Loading factor estimates suggest that in the short run income and consumption adjust most of the discrepancies, while stock market and housing wealth are weakly exogenous.