How strong is the wealth channel of monetary policy transmission? A microeconometric evaluation for Austria

We study the magnitude and the sources of wealth effects on consumer spending in Austria by using household-level data from the Austrian Household Finance and Consumption Survey (HFCS) 2010 and 2014. Microdata allow us to investigate whether such effects exist, and if so, whether they are heterogeneous across household groups. We find evidence for a limited but statistically significant positive (long-run) relationship between wealth and consumption in Austria: a EUR 1 increase in gross/net wealth increases mean consumption by 1 cent. We also find that this effect is driven by financial assets for which the marginal propensity to consume is estimated to be around 5 cent. Furthermore, the consumption function is concave in wealth, i.e. the marginal propensity to consume out of wealth is lower for households with more wealth. However, given that in Austria wealth is concentrated in the upper tail of the wealth distribution, the decreasing marginal propensity to consume out of wealth is counterbalanced in the aggregate. Additionally, the marginal propensity to consume out of wealth increases across the consumption distribution. Regarding the various hypotheses discussed in the literature concerning the nature of the correlation between wealth and consumption, for Austria we can find support for the precautionary savings channel only.