Faculty of Economics and Business Administration Publications Database

Wealth and Consumption: A Multicointegrated Model for the Unified Germany

Volume: 221
Number: 1
Pages: 32 - 44
ISSN-Print: 2366-049X
Year: 2001
Abstract: In a multicointegrated consumption function, consumption is explained by income and wealth, where wealth is measured as cumulated saving. This implies that income and wealth are cointegrated, and their impact on consumption cannot be estimated from a static cointegrating regression. It is proposed to estimate the parameters of an error-correction equation instead, and to solve it for the equilibrium relationship in levels. Then long-run multipliers of income and wealth can be computed. This technique is applied to German series with data for the unified Germany after 1990. The multicointegrated life cycle hypothesis is supported by the data.