Consumption, Income and Wealth - Part 2
Monetary review, 2nd Quarter 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.