Disaggregate wealth and aggregate consumption: An investigation of empirical relationships for the G7

To date, testing for wealth effects in consumption has mainly used aggregate wealth definitions,and/or is on a single-country basis. This study breaks new ground by analysing disaggregated wealth inconsumption functions for G7 countries. Contrary to other empirical work, illiquid financial wealth, (securities,pensions and mortgage debt), tends to be a more significant long-run determinant of consumption than liquidfinancial wealth. We suggest that this pattern reflects a shift from liquidity constrained to life cycle behaviourfollowing financial liberalisation. Results were robust in SURE analysis, tested in a nested manner, usingvarying definition of liquid assets and using non-property income instead of personal disposable income. Waldtests indicate similar long-run behaviour for all EU countries including the UK.