Économie et Statistique n° 438-440 - Aspects of the crisis
Wealth Effects: the Case of France
Recent wealth trends in the main industrialized countries have been strongly influenced by the financial crisis. To assess their impact on consumption, we estimate wealth effects in France for 1987-2008 and the more recent period using time-series cointegration methods. We follow the two main theoretical approaches in the literature on wealth effects, focused respectively on marginal propensity to consume and elasticity. Our estimates take into account several concepts of consumption (total consumption, consumption of non-durable goods, and consumption excluding financial services) and rely on three different methods for estimating the cointegration vector (DOLS, VECM-ML, and VECM-GLS). This comparative approach yields stable and converging estimates. It enables us to conclude that wealth effects in France have been significant but moderate: a doubling of wealth boosts consumption by 8-10% via aggregated wealth effects. We also find that the financial effects (roughly 10-12%) always outweigh real-estate effects (ca. 6%), whatever the approach or method used. These estimates appear to converge with those identified in Italy. They are weaker than in the United Kingdom, the United States or Germany. The short-term adjustment is achieved through disposable income, as in Germany, and not through assets, as in the U.S. In sum, if the phenomenon had been permanent, the drop in asset prices observed during the crisis would have trimmed French household consumption by a few tenths of a percentage point.