Financialization and Private Consumption

In this section, we analyse the impact of financialization on households’ economic activity. In this subsection we study the impact of the changes in the components of the financial balance sheets of households (that is, the change measured as a percentage of the GDP of net financial assets, financial assets, and financial liabilities of non-financial corporations) on private consumption. Thus, the dependent variable in this section will be the percentage change in real private consumption (Ct-Ct-n/


Data on real private final consumption (2010 prices) of households have been obtained from the AMECO database. Given that the first available year for the households’ financial balance sheets is 2001 for Ireland and Slovenia, 2002 for Luxembourg and 2004 for Latvia and Malta, for these countries the analysis covering the period before the Great Recession begins in these years.

During the Great Recession we have found no significant relationship between the change in the size of households’ private consumption and the change in the size of net financial assets, financial assets, or financial liabilities of these agents. This result implies that the fall of private consumption registered between 2008 and 2014 (on average private consumption in Eurozone countries fell 2.1 percent in this period) cannot be attributed to the changes recorded in the households’ financial balance sheet (in this period, financial assets rose by 31.1 percent of GDP, financial liabilities increased by 1 percent of GDP, and net financial assets rose by 30.1 percent of GDP).

However, when we have analysed the performance of private consumption in the years 1999 to 2008 we have detected a significant impact on consumption of the change in financial assets and liabilities.

Table 3.5 shows the results of the OLS estimations. Before the Great Recession, private consumption increased 32.7 percent in Eurozone countries, while households’ financial assets declined on average by 3.4 percent of GDP Column 2 shows the existence of a quadratic relationship between the change of consumption and the change in the size of financial assets of households. The sign of the coefficients implies that

Table 3.5 OLS estimation results. Dependent Variable: Change of Private Consumption of Households (1999-2008)


APrivate Consumption

APrivate Consumption


27.08 (0.000)

12.44 (0.235)

Financial Assets

0.70 (0.023)

Financial Assets2

0.01 (0.036)


0 .85 (0.026)





3.430 (0.057)

5.885 (0.026)




Jarque-Bera statistics

2.040 (0.360)

5.845 (0.053)

p-values in parenthesis the change of financial assets has a positive and increasing effect on the change in private consumption. Therefore, before the Great Recession the declining rise of households’ financial assets would have contributed to moderate the growth in private consumption.

However, the evolution of households’ financial liabilities would have had a larger impact on private consumption. On average, households’ financial liabilities grew 23.9 percent of the GDP in this period, what would have increased private consumption by 20.3 percent. This result reinforces the idea that before the Great Recession private consumption was fuelled by increased household borrowing.

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