This Website uses cookies. By using this website you are agreeing to our use of cookies and to the terms and conditions listed in our data protection policy. Read more

Journal of Applied Econometrics

Aggregate Consumption and Wealth in the Long Run: The Impact of Financial Liberalization

Journal Article
Reference
Gardberg, Malin and Lorenzo Pozzi (forthcoming). “Aggregate Consumption and Wealth in the Long Run: The Impact of Financial Liberalization”. Journal of Applied Econometrics. doi.org/10.1002/jae.2870

Authors
Malin Gardberg, Lorenzo Pozzi

This paper investigates the impact of financial liberalization on the relationship between consumption and total wealth (i.e., the sum of asset wealth and human wealth). We propose a heterogeneous agent framework with incomplete markets where financial liberalization, by signalling a future reduction in the incomplete markets component of consumption growth, increases the current consumption-wealth ratio. From the model, an aggregate long-run relationship is derived between consumption, total wealth and financial liberalization which is estimated by state space methods using quarterly US data.