Equity wealth and consumption -- the experience of Germany, France and Italy in an international context

Consumption in Germany, France and Italy (the EU3) has generally been thought to be less responsive to wealth effects than in the UK or the US. The aim of this article is to assess the evidence for changes in the responsiveness of EU3 consumption to changes in equity prices, given the rapid increase in share prices in recent years and the rising share of financial assets held in equities during the 1990s. A number of macroeconometric models show weaker equity wealth effects in the EU3 relative to the US. Demographic factors may be important in explaining cross-country differences in consumption patterns, particularly through their effect on the marginal propensity to consume from income and wealth.