An Empirical Analysis of Financial and Housing Wealth Effects on Consumption in Turkey

This paper investigates the financial and housing wealth effects on aggregate private consumption in Turkey for the period 1987-2007. Given the lack of data, the study proposes an innovative method to construct a proxy for the housing wealth series. A long-run equilibrium relationship between consumption, disposable income, financial and housing wealth is estimated using the cointegration method, and a sensitivity analysis is undertaken following Leamer & Leonard�s (1983) extreme bound analysis approach. The results show that income elasticity of consumption is much higher in Turkey than in industrialized countries. While financial and housing wealth effects on consumption are found to be positive, there is no evidence that one effect is stronger than the other.