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Debt Dynamics and the Relationship Between Consumption and Cyclical Wealth Changes *
Author(s) -
VEIRMAN EMMANUEL DE,
DUNSTAN ASHLEY
Publication year - 2012
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2012.00812.x
Subject(s) - economics , consumption (sociology) , debt , national wealth , monetary economics , asset (computer security) , boom , net worth , bust , stock (firearms) , wealth effect , household debt , permanent income hypothesis , financial economics , macroeconomics , finance , mechanical engineering , social science , computer security , environmental engineering , computer science , engineering , sociology , market liquidity
We analyze the consumption–wealth relationship using a framework that accounts for transitory variation in wealth, and in a setting where transitory variation in household net worth is not dominated by boom and bust cycles in stock markets. We find that a transitory asset wealth increase coincides with a substantial transitory increase in consumption. In addition, we find that gross asset wealth and household debt are positively related. Both findings constitute departures from standard Permanent Income Hypothesis (PIH) theory with complete financial markets.