Abstract
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.
Highlights
During the last several years, finance has acquired great prominence and assumed growing dominance over the economy and society in the majority of countries
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 aimed to evaluate the relationship between financialisation and Portuguese private consumption by performing a time series econometric analysis from the first quarter of 1996 to the third quarter of 2019
Summary
During the last several years, finance has acquired great prominence and assumed growing dominance over the economy and society in the majority of countries. This phenomenon, commonly referred to as financialisation, has influenced the behaviour of economic agents, including households. Financialisation has led to an increase of private consumption due to the rise of both households’ debt and households’ financial and housing wealth. These authors highlight that the global net effect of financialisation on private consumption has been positive because the supportive wealth effect has been sufficient to compensate the disruptive income effect
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