Housing wealth, stock wealth and consumption expenditure: A dynamic analysis for Hong Kong

Purpose: The purpose of this paper is to explore the long-run relation and short-run dynamic correlations between consumption expenditure and household wealth, namely housing wealth and stock wealth. Design/methodology/approach: This paper adopts aggregate time-series data over the period of 1981Q1-2010Q4 in Hong Kong. It employs the ARDL to cointegration procedure and the multivariate stochastic volatility (MSV) model to investigate the long-run elasticity and dynamic correlations between aggregate consumption expenditure and household wealth indicators. Findings: The results suggest that both housing wealth and stock wealth have significant effects on consumption expenditure after controlling for the aggregate income level. The long-run elasticity of consumption expenditure with respect to housing wealth and stock wealth are 0.3877 and 0.1424 respectively, while the marginal propensity to consume for housing wealth and for stock wealth are 0.2159 and 0.0266 respectively. The dynamic correlation analysis implies that the decrease in housing and stock wealth may further depress consumer behavior and economic condition during the post-financial crisis period. Originality/value: This paper provides useful information with regard to the long-run and dynamic relations between consumption and different types of wealth components.