Asset prices and consumption in Germany

This paper by the BBK looks at the relationship between the wealth-consumption ratio and asset prices in Germany and finds that, contrary to the experience of similar studies in the US, there is no effect of asset prices on consumption. Consumption in Germany is much more a function of changes in permanent income. This could be one explanation for the weakness of consumer spending relative to that seen in the US and the UK. Permanent income is likely to have declined with the structural adjustments taking place in Germany and with demographic and fiscal policy issues for the future. In the US and UK, while similar fiscal and demographic issues exist, the increase in private housing assets may have temporarily boosted consumption above its long run trend.