OECD Journal: Economic Studies

Frequency :
Annual
ISSN :
1995-2856 (online)
ISSN :
1995-2848 (print)
DOI :
10.1787/19952856
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OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension. While it draws significantly on economic papers produced by the Economics Department and other parts of the OECD Secretariat for the Organisation’s intergovernmental committees, the submission of articles produced by non-OECD authors is encouraged. We also welcome comments on articles previously published in the journal. Now published as part of the OECD Journal package.

Article
 

New International Evidence on Asset-Price Effects on Investment, and a Survey for Consumption You do not have access to this content

Authors:
E. Philip Davis
Publication Date
17 Jan 2011
Pages
8
Bibliographic information
No.:
8,
Volume:
2010,
Issue:
1
Pages
1–50
DOI
10.1787/eco_studies-2010-5km33scv75kc

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A survey of the literature on asset price impacts on the real economy shows a much wider range of work on consumption and related wealth effects than on investment. The existence of wealth effects on consumption per se is little contested, but there remains an issue of whether different effects should hold between countries and across assets. On balance we contend that the literature suggests a role for housing and tangible wealth as well as financial wealth as a determination of consumption. In terms of investment there are numerous studies implying that uncertainty and balance sheet effects on investment can both be detected, albeit the latter more in micro than macro studies. In the light of the investment literature, we undertook panel investment functions on a macro basis for up to 23 OECD countries. Developing earlier work, it was found that the main significant effects arising from asset prices come from the financial accelerator, credit channel and Tobin’s Q (especially in the G7) and uncertainty as proxied by asset price volatility (especially in smaller OECD countries). There is also evidence for non-linearities in volatility. Descriptive analysis as well as tentative cross-sectional regression showed that both balance sheet and uncertainty channels played a role in the recent financial crisis, when investment fell sharply, although the simple accelerator was also important. The work has implications for monetary, fiscal and regulatory policies, all of which can impact on asset prices and the financial sector and thus via this channel on the wider economy.