Stock Market Fluctuations, Housing Wealth and Consumption Behaviour in Turkey

Abstract

This paper investigates the effects of stock market, housing and financial wealth on durables and non-durables consumption in Turkey with a vector error correction model for the 1987-2006 period. The paper uses an originally constructed housing wealth series in addition to the stock market capitalization and banking deposits as proxies for the stock market and financial wealth respectively. Consistent with the life-cycle and permanent-income hypotheses, net private disposable income, bank credit to the private sector, and the real exchange rate fluctuations are also controlled in the estimation. The main finding is that in the long-run, an increase in housing wealth raises the consumption of non-durables, but has no effect on consumption of durables. On the other hand, durables consumption is significantly affected by the stock market wealth in contrast to the lack of effect on non-durables consumption. Short-run coefficients indicate positive wealth effects from stock market capitalization and financial savings on consumption of both non-durables and durables. However increases in housing wealth lower the consumption of non-durables in the short-run.