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We are grateful to Craig Beaumont for important feedback and useful suggestions. We thank Jochen Andritzky, Shane Enright, Lorenzo Forni, Vitor Gaspar, Sanjeev Gupta, Plamen Iossifov, Rea Lydon, John McCarthy, Michael McGrath, Brendan O’Connor, Tigran Poghosyan, Marta Ruiz Arranz, Jerome Vandenbussche for helpful comments and discussions. We also thank the participants at the Fiscal Affairs Department seminar for their useful suggestions.
“Expected future non-property income” refers to the flow of current and discounted expected future non-property income. Current real disposable non-property income is generally assumed to remain a constant share of expected future non-property income, as noted by Davis and Palumbo (2001) and Davis (2010), so that a 1 percent increase in current non-property income is equivalent to a 1 percent increase in expected future non-property income.
Boone et al. (2001) find that the U.S. has lower financial and housing wealth effects than most other G7 countries. In contrast, Kerdrain (2011) finds that MPCs out of financial wealth is very similar for the U.S., Japan, and the euro area, but housing wealth effects are much larger for the U.S. than elsewhere. Catte et al. (2004) report higher financial wealth and lower housing wealth effects in Japan than in the U.S.
Cross country differences in wealth effects could arise from differences in access to housing credit, for example availability of home equity loans and loan-to-value requirements. See Chauvin and Muellbauer (2014) for the case of France.
Countries include Australia, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom, and United States.
The dataset is comprehensive and exploits a wide spectrum of geographic variation. However, there are also substantial institutional differences among countries, such as variations in the taxation of wealth and capital gains and in constraints affecting borrowing and saving.
Financial assets held by households refer to: currency and deposits; securities other than shares, except financial derivatives; shares and other equity, except mutual fund shares; mutual fund shares; net equity in life insurance reserves; and, net equity in pension funds. It excludes financial derivatives, loans, prepayments of premiums and reserves against outstanding insurance claims, and other accounts receivable which are generally less significant.
The debt of households mainly consists of home mortgage loans, but also other types of liabilities such as credit lines and credit cards, and other consumer credit (such as automobile loans or student loans).
Household assets include dwellings and other buildings and structures and land improvements. Household assets are valued at market prices at the time to which the balance sheet relates, and are recorded net of depreciation.
Results for panel unit root tests confirm the presence of a unit root also when individual intercepts and trends are included in the test equation.
Coefficients in the MG estimation often lose significance due to large estimates for variances, an issue identified by Pesaran et al. (1999). The large variance of MG estimates is not surprising because the MG model estimates both long-run and short-run coefficients with a more limited number of observations given by each country’s own time series.