are wealth effects important for canada

8/6/2019 Are Wealth Effects Important for Canada

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Bank of Canada Banque du Canada

Working Paper 2003-30 / Document de travail 2003-30

Are Wealth Effects Important for Canada?

by

Lise Pichette and Dominique Tremblay


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ISSN 1192-5434

Printed in Canada on recycled paper


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Bank of Canada Working Paper 2003-30

October 2003

Are Wealth Effects Important for Canada?

by

Lise Pichette1 and Dominique Tremblay2

1Research DepartmentBank of Canada

Quebec Regional Office

Montral, Quebec, Canada H3A [email protected]

2Research DepartmentBank of Canada

Ottawa, Ontario, Canada K1A 0G9

The views expressed in this paper are those of the authors.No responsibility for them should be attributed to the Bank of Canada.


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iii

Contents

Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Abstract/Rsum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Literature Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3. Data Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3.1 Wealth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3.2 Consumption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4. Empirical Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4.1 The VECM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4.2 Permanent component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.3 Transitory component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4.4 Variance decomposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4.5 Marginal propensities to consume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Appendix A: Data Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Appendix B: KPSW Identification Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Appendix C: Bias-Corrected Confidence Intervals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


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iv

Acknowledgements

We would like to thank Robert Amano, Gabriel Srour, and John Anania for helpful comments and

suggestions. Any remaining errors or omissions are our own.


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1965 1970 1975 1980 1985 1990 1995 20000.54

0.56

0.58

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Total consumption / real GDP

Real disposable income / real GDP

Nonhuman wealth / real GDP


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1965 1970 1975 1980 1985 1990 1995 20000

20000

40000

60000

80000

100000

120000

140000

160000

0

20000

40000

60000

80000

100000

120000

140000

160000

Non-Human Wealth

Stock Market Wealth

Housing Wealth


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1.004

1.006

1.008

1.010

1.012

1.014

1.016

55 60 65 70 75 80 85 90 95 00

Using real data Using nominal data

0 5 10 15 20 25 30 35 400.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Quarters


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0 5 10 15 20 25 30 35 400.15

0.1

0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Quarters

0 5 10 15 20 25 30 35 400.04

0.02

0

0.02

0.04

0.06

0.08

0.1

0.12

Quarters


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0 5 10 15 20 25 30 35 400.05

0

0.05

0.1

0.15

0.2

Quarters

0 5 10 15 20 25 30 35 400.2

0.1

0

0.1

0.2

0.3

0.4

0.5

Quarters


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0 5 10 15 20 25 30 35 403

2

1

0

1

2

3x 10

3

Quarters


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Bank of Canada Working Papers

Documents de travail de la Banque du CanadaWorking papers are generally published in the language of the author, with an abstract in both official

languages.Les documents de travail sont publis gnralement dans la langue utilise par les auteurs; ils sont

cependant prcds dun rsum bilingue.

Copies and a complete list of working papers are available from:

Pour obtenir des exemplaires et une liste complte des documents de travail prire de sadresser :

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2003-22 The Construction of Continuity-Adjusted

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2003-21 Dynamic Factor Analysis for Measuring Money P.D. Gilbert and L. Pichette

2003-20 The U.S. Stock Market and Fundamentals: A

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2003-19 A Small Dynamic Hybrid Model for the Euro Area R. Djoudad and C. Gauthier

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