Abstract

This paper makes an empirical evaluation of the relationship between financialisation and the Portuguese private consumption by performing a time series econometric analysis from the first quarter of 1996 to the third quarter of 2019. Framed within the post-Keynesian literature, financialisation has two contradictory effects on private consumption. The first one corresponds to the fall in the households’ labour income, which favours a deceleration of private consumption. The second one corresponds to the increase of households’ debt and the increase of households’ financial and housing wealth, which favours an acceleration of private consumption. The global net effect of financialisation tends to be positive because the beneficial wealth effect suppresses the harmful income effect. We estimated a private consumption equation that includes four control variables (unemployment rate, inflation rate, short-term interest rate and long-term interest rate) and three variables linked to financialisation (labour income, net financial wealth and housing wealth). Our results confirm that labour income, net financial wealth and housing wealth are positive determinants of Portuguese private consumption. Our results also show that financialisation has represented an important driver of Portuguese private consumption, particularly due to the beneficial effects of net financial wealth. JEL Classification: C22; D10; E21; E44.

Highlights

  • This paper makes an empirical evaluation of the relationship between financialisation and the Portuguese private consumption by performing a time series econometric analysis from the first quarter of 1996 to the last quarter of 2016

  • We modeled and estimated a private consumption equation by incorporating four control variables and three variables linked to the aforementioned contradictory effects of financialisation on private consumption

  • This paper aims to contribute to the existing literature in five different ways, namely by analysing Portugal; incorporating the period where financialisation becomes more preponderant in Portugal; incorporating the pre-crisis, crisis and post-crisis periods, respectively; assessing the effects of financialisation in total private consumption and in non-durable and durable private consumption; and by including other control variables in the private consumption equation

Read more

Summary

INTRODUCTION

During the last several years, finance has acquired great prominence and assumed growing dominance over the economy and society in the majority of countries. Financialisation has led to an increase of private consumption due to the rise of households’ financial and housing wealth. Most of them conclude that labour income, financial wealth and housing wealth are positive determinants of private consumption (Boone et al, 1998; Ludvigson and Steindel, 1999; Davis and Palumbo, 2001; Edison and Sløk, 2001; Mehra, 2001; Boone and Girouard, 2002; Ludwig and Sløk, 2002; Castro, 2007; Farinha, 2008; Sousa, 2008, 2009; Slacalek, 2009; Onaran et al, 2011; Barrel et al, 2015; Barradas, 2017a). We recognise that Castro (2007) and Farinha (2008) analyse this issue for Portugal, but they follow different strategies The latter uses microdata at households’ level and focuses its analysis only in 1994, 2000 and 2006.

LITERATURE REVIEW
MODEL AND HYPOTHESES: A PRIVATE CONSUMPTION EQUATION
DATA AND METHODOLOGY
EMPIRICAL RESULTS
CONCLUSION
Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call