Consumption and Wealth: New Evidence from Italy

44 Pages Posted: 10 Dec 2020 Last revised: 12 Dec 2020

See all articles by Riccardo De Bonis

Riccardo De Bonis

Bank of Italy

Danilo Liberati

Bank of Italy

John Muellbauer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Concetta Rondinelli

Bank of Italy

Date Written: November 11, 2020

Abstract

This paper estimates a consumption function for Italy. In addition to permanent income, housing wealth, the interest rate on household loans and an index of credit conditions, our model introduces household net worth split into liquid and illiquid assets. The consumption dynamics are examined by using financial accounts and real national accounts in a Vector Error Correction Model (VECM), estimated from 1975 to 2017. The results show that the marginal propensity to consume out of liquid financial assets – mainly deposits and bonds – is positive and statistically significant, and greater than that for illiquid assets (mainly unquoted shares and insurance and pension assets); we also find that housing wealth has a smaller and significant impact on consumption. As expected, permanent income accounts for a large fraction of consumption, while the effect of the interest rate is negative.

Keywords: liquid and illiquid assets, permanent income, credit conditions

JEL Classification: E21, E32, E44, E51

Suggested Citation

De Bonis, Riccardo and Liberati, Danilo and Muellbauer, John and Rondinelli, Concetta, Consumption and Wealth: New Evidence from Italy (November 11, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1304, Available at SSRN: https://ssrn.com/abstract=3746164 or http://dx.doi.org/10.2139/ssrn.3746164

Riccardo De Bonis

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Danilo Liberati (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

John Muellbauer

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 583 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Concetta Rondinelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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