Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2006:16: Housing Wealth and Aggregate Consumption in Sweden

Jie Chen ()
Additional contact information
Jie Chen: The Institute for Housing and Urban Research, Uppsala University, Postal: Box 785, 80129 Gävle, Sweden

Abstract: This paper extends the VECM cointegration model and PT (permanent-transitory) variance decomposition framework proposed by Lettau & Ludvigson (2004) and applies them on the Swedish data spanning from 1980q1 to 2004q4. There are strong statistical evidences that the movements of aggregate consumption, disposable income, housing wealth and financial wealth are tied together. However, it also suggests that the short run variations in the Swedish housing market are largely dissociated with consumer spending. Meanwhile, it is shown that the strength of the linkage between consumption and housing wealth is not sensitive to different model specifications and various measures of key variables.

Keywords: housing wealth; consumption; wealth effect; VECM; PT decomposition

JEL-codes: E21; E32; E44; R31

52 pages, June 10, 2006

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