Updating on Housing Wealth and Consumption in Sweden

Abstract: Using the most recent data from 1996 to 2016, I examine the more current relationship between housing wealth and private consumption. I extend the Life-Cycle Hypothesis and separate wealth into housing wealth from financial wealth. The main method em-ployed is the Engle-Granger two-step method. Combined with the use of quarterly data, the method allows investigation of the long-term and short-term effects in one methodological framework. Several modifications of a baseline model are tested and compared in search for the best model. The results reinforce the findings of previous studies, that housing wealth has a substantial effect on consumption. The exact estimates may vary depending on the choice of theory and methodology. Nevertheless a considerable effort was made on data selection to ensure that the estimates can provide a reliable update on the relationship, which could be useful for economists and politicians alike.