The Wealth Effect of Housing and Stock Price Fluctuation

The purpose of this paper is to find the impact of housing and stock prices volatility on the consumption. Using panel data of 30 provinces during 1999-2012 in China, we established a dynamic panel data model estimated with the first order differenced GMM. Different from many relative researches we found that housing had significant wealth effect on consumption while stock wealth effect showed weak negative effect. Differences in economic levels had a significant effect on the long-run equilibrium relationship of housing price and consumption. As the level of economic development improving, the impact of housing price on consumption was reduced. These findings are helpful for China to manage her domestic demands.