Wealth Effects in the New Europe Countries

PGAM Economic Research

We explore the dynamics of household financial and real estate wealth in countries that have recently joined the EU and other “New Europe” countries and their impact on consumption and on other macroeconomic variables.

Financial wealth, though still relatively low in absolute terms, is the most dynamic macroeconomic aggregate throughout the region. This appears to be the result of a combination of “virtuous” direct and indirect effects. Housing is also very dynamic and has a significant wealth effect on private consumption, as does increased access to credit.

The combination of these effects support the view that, in the New Europe countries, wealth is set to expand on a long-term sustainable path.

We use a panel of 9 countries observed annually for varying periods over the last 7 years – Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Poland, Romania and Slovakia.