EFFECTS OF HOUSING WEALTH ON AGGREGATE CONSUMPTION IN ASIA PACIFIC COUNTRIES

Abstract

This research paper examines the effects of housing wealth on aggregate consumption in Asian Pacific countries. It posits that housing wealth does have an effect on aggregate consumption levels across the Asia Pacific region. Thus, this research seeks to explore whether such housing wealth effects are prevalent in this region. Next, it seeks to examine if housing wealth effects tend to differ in the different types of economies across Asian Pacific countries. Lastly, it seeks to investigate whether the effects of housing wealth on aggregate consumption will vary due to financial shocks in the economy. The econometric model adopted for this paper is the Auto-Regressive Distributed Lag (ARDL) Model and the Pooled Mean Group (PMG) Estimator. Through this study, it was determined that the effects of housing wealth in developing economies is more significant and positive than major developed and developed economies. The results show that a 1% increase in housing wealth will result in 0.0732% drop for developed economies and 0.425% increase in aggregate consumption for developing economies. In view of this, it can be interpreted that there is a higher sensitivity to changes in housing wealth for developing economies than developed economies. Additionally, it was also estimated that different time periods yield different effects of housing wealth on aggregate consumption due to the financial shocks experienced in that specific time period, as a 1% increase in housing wealth during Q2:1988 to Q4:1997 will lead to a 0.117% drop in aggregate consumption while a 0.111% increase in aggregate consumption during Q1:2009 to Q1:2017 for developed economies. A positive relationship is also determined to be dominant in a healthy housing market while a negative relationship dominates in an unhealthy housing market. These findings coincide with Dong et al (2017), which also observed positive significant housing wealth effects in a healthy market and negative housing wealth effects in an unhealthy market.