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How Reliable are Cointegration-Based Estimates for Wealth Effects on Consumption? Evidence from Switzerland

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According to economie theory, the intertemporal budget constraint of households implies that a permanent increase in wealth should have a positive effect on consumer spending. Given the comparatively strong increase in Swiss household wealth over the past few years, the question of the extent to which changes in wealth influence expenditures of households has become of special interest for Switzerland. In this paper, I show that while the link among consumption, wealth and income was quite strong from 1981 to 2000, it has been very unstable since 2001. This fact suggests that the gap among the three variables, i.e., the deviation from long-run equilibrium, that has opened over the last few years is less likely to close. The results apply to aggregate wealth effects as well as to separate financial and housing wealth effects. Furthermore, I document several fragility issues related to the use of the cointegration approach to estimating wealth effects. These issues highlight the importance of carefully checking the robustness of the results, instead of looking just at one cointegration estimation method and only one time period. They also highlight the need for a non-cointegration approach to estimating wealth effects.


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Author information

Correspondence to Alain Galli.

Additional information

I want to thank Gregor Bäurle, Pascal Gantenbein, Mathias Hoffmann, Katarina Juselius, Mico Loretan, Matthias Lutz, Massimiliano Marcellino, John Muellbauer, Klaus Neusser, Thomas Nitschka, Rolf Scheufele, Frank Schmid, Mark Watson, three anonymous referees, and seminar participants at the 2015 OeNB-BuBa-SNB workshop for valuable comments. The views expressed in this paper are those of the author and not necessarily those of the Swiss National Bank.

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Galli, A. How Reliable are Cointegration-Based Estimates for Wealth Effects on Consumption? Evidence from Switzerland. Swiss J Economics Statistics 153, 437–479 (2017).

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  • JEL classification
  • D12
  • E21
  • E44


  • Wealth effects
  • consumption-to-wealth ratio
  • cointegration
  • cay residual