Disaggregate Wealth and Aggregate Consumption: an Investigation of Empirical Relationships for the G7*

To date, studies of wealth effects on consumption have mainly used aggregate wealth definitions on a single‐country basis. This study seeks to break new ground by analysing disaggregated financial wealth in consumption functions for G7 countries. Contrary to earlier empirical work, we find that illiquid financial wealth (i.e. securities, pensions and mortgage debt) tends to be a more important long‐run determinant of consumption than liquid financial wealth. These results imply potential instability in consumption functions employing aggregate wealth. Our results are robust using SURE; when testing with a nested specification; and when using a linear model.