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

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 decreases with net wealth. Our results uncover the existence of sign and magnitude asymmetries in the MPC. This asymmetric behavior is not present in households with higher income expectations, suggesting that the transmission channel is related to precautionary saving motives.