THE RELATIONSHIP BETWEEN CONSUMPTION, INCOME AND WEALTH IN HONG KONG

Abstract. This paper estimates a consumption function for Hong Kong along the lines of the standard life‐cycle model. I find a stable relationship between consumption, labour income and wealth with plausible long‐run estimates of the implied marginal propensity to consume out of income and wealth. The marginal propensity to consume out of housing wealth is estimated to be lower than in other industrialized economies, which is consistent with a relatively uneven distribution of wealth in Hong Kong. Arithmetically, the decline in housing wealth in Hong Kong since 1997 can more than account for the weakness of consumption since then.