The impact of unanticipated wealth effects on consumption: evidence from Spanish panel data

Abstract

Purpose – The purpose of this study is to estimate the housing wealth effect on non-durable consumption using data from the Spanish Survey of Household Finances (Encuesta Financiera de las Familias, SHF) for the period 2002–2017. Design/methodology/approach – The authors aim at identifying the effect of anticipated and unanticipated housing wealth changes on consumption with the sample of homeowners, following Paiella and Pistaferri (2017). Findings – Results of this study lead us to conclude that there exists a strong housing wealth effect on consumption for the Spanish households. Originality/value – The authors provide evidence against the permanent income model. They also analyse how the results change with income expectations, age and the household indebtedness rate. Finally, they detect a strong excess sensitivity to income.

Keywords

• Wealth effect on consumption
• Subjective expectations
• Instrumental variables
• Panel data