Lund Papers in Economic History,
Lund University, Department of Economic History

Abstract: The global financial crisis has highlighted the importance of financial factors on economic performance. Most of the existing research analyses the post-World War 2 experience, and especially the 1980s onwards. This paper investigates the effects of stock prices, real estate prices and debt on consumption and investment expenditures by estimating consumption and investment equations for long historic datasets with about 100 years of data for Britain, France, Norway and Sweden. We find positive debt effects on consumption in three of four countries, but no consistent effects of share prices and house prices. We find positive effects of share prices on investment in all four countries. Effects are stronger in more market-based Britain than in more state-oriented France. For France, Sweden and Norway we find some evidence that effects of financial variables were weaker in the postwar period 1945-80. These findings suggest that the institutional context matters for how financial variables affect economic activity.

Keywords: wealth effects; asset prices; consumption; investment; macroeconomic history

JEL-codes: E10; E21; E22; G10; N10; N14

51 pages, January 14, 2019

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