engleski

Importance of housing wealth effect in selected European countries: evidence from panel VAR model

In this study, a system estimation of housing wealth effect on consumption by employing panel vector autoregressive model is conducted for a panel of 28 selected developed and emerging European countries. A system of three endogenous variables: consumption, disposable income and housing wealth (approximated by real estate price indices) is modelled. Since housing wealth effect should be more prominent than financial wealth effect, in this paper the dynamic relationship between consumption and housing wealth is empirically tested. The panel vector autoregressive (PVAR) approach allows for the response effect from consumption to wealth and income. In addition, it illustrates how response of consumption and housing wealth differ according to the nature of shocks to them. The data for unbalanced panel spans (when available) from 1990 to 2016. The dataset consists of yearly indices for personal consumption, disposable income, wages and real estate prices. Data sources used in the empirical analysis include the Vienna Institute for International Economics (WIIW) and AMECO for personal consumption, disposable income, wages, and Bank for International Settlements (BIS) database for real estate price indices. All variables are transformed into logarithms and are expressed in first differences. The estimation is conducted using generalised method of moments (GMM) and addresses the issue of unobserved heterogeneity by correcting for fixed effects. Impulse response and forecast error variance decomposition is presented, as well as VAR lag selection criteria, Granger causality test results and roots of VAR companion matrix. With the aim of comparing the magnitude of income and housing wealth shocks on consumption in developed and post-transition European countries, the main panel is divided into two subpanels. In addition, the impact of financial crisis in 2008 on housing wealth shock on consumption is analysed by splitting the data set into two sub-panels: first one spanning from 1990-2008 and the second one spanning from 2009-2016. The results of the empirical analysis reveal that the response of personal consumption to a housing wealth shock is more prominent for the panel of post- transition European countries when compared to developed countries. Also, the higher responsiveness of consumption to a housing wealth shock is evident before crisis, whereas in the post-crisis sample, housing wealth has no significant impact on consumption.

consumption, housing wealth effect, panel vector autoregression, Western Balkan countries, CEE countries

This work has been fully supported by Croatian Science Foundation under the project STatistical Modelling for REspoNse to Crisis and Economic GrowTH in WeStern Balkan Countries -STRENGTHS (No.: IP 2013-9402)