Consumption, Income and Wealth - Part 2

Monetary review, 2nd Quarter 2013

Authors Bang-Andersen, Jens; Hvolbøl, Tina Saaby; Kramp, Paul Lassenius; Ristorp Thomsen, Casper
Subject Danish Economy
Type Monetary Review  
Year 2013
Published 25 July 2013
Over the last 10-15 years, Danish households have increased their net wealth as a ratio of income. At the same time, they have also expanded their balance sheets, i.e. both assets and liabilities. This article examines how net wealth and its composition have influenced growth and fluctuations in private consumption. We also investigate the effects of financial flows from household wealth on household income and hence the scope for consumption. The analyses show e.g. that house prices were the most important factor behind the surge in consumption during the boom in 2004-07 and the subsequent sharp fall. Moreover, it is demonstrated that the falling interest rates in recent years – in response to the marked international economic slowdown – have contributed substantially to cushioning private consumption.