The wealth-consumption channel: Evidence from a panel of Spanish households

Understanding the way households modify their consumption is essential to address the impact of different economic policies. In this paper we use a panel of Spanish households spanning the period 2002-2011 to study the marginal propensity to consume (MPC) out of wealth. The wealth effect is identified by exploiting within-household variations in a period of relatively large volatility in asset prices. We estimate a MPC out of total wealth of around 1 cent with changes in housing wealth affecting consumption more than other assets. We also find supporting evidence on the concavity of the consumption function, showing that the MPC is a decreasing function of net wealth. Finally, in line with theoretical models accounting for liquidity constraints and precautionary savings, our results confirm the existence of sign and magnitude asymmetries in the MPC.