Empirical findings related to the models and the wealth effect has been done to find the effects of interest rate on consumption. The Var representation of the, Leon and Flores method has been used to find the non-stationary variables which can be used for the co-integration of the dynamic relationship between different types of variables. In addition to this, the structural shocks have been identified. From the research paper, it can be found that both types of wealth can have an impact on the consumption and the change in the terms. Similarly, the variable prices of housing have been identified to change as per the predictions which have been done in the financial accelerator model.
Further, there has been a detection of the feedback effect, which may come from the central bank. From the empirical study, it has been found that there has been a great increase in the Spanish consumption by the financial and residential wealth effects. In future, there is a requirement to analyze the different factors which may be related to rise and fall in the housing prices. Further, the empirical analysis will be done by considering a middle class economy to find variation in the housing wealth and housing prices. In this research paper, the housing prices and housing wealth has been analyzed in Spanish economy through the use of different theories and model. The research paper has been successful in answering the research question with the help of literature theories and empirical evidence. The very first research paper published by Efthymios Argyropoulos, Elias Tzavalis provides the evidence related to the forecasting ability of the short term interest rates and the term spread of the same with the long term interest rates.
From the estimates of the price coefficients it can be find that the source of risk which may be related to the movements of different state variables of the real term structure are something which are priced in the market. The second research paper published by Joshua Aizenman, Eduardo Cavallo and Ilan Noys studies the volatility of the private sector has been efficiently observed. In the third report by ‘Manuel León Navarro a, Rafael Flores de Frutos’ the housing prices and the housing wealth has been found to be important for different impacts related to consumption. In addition to this, the analysis of the effects of residential and financial wealth on consumption has been studied. In addition to this, there has been an analysis of the importance of each of the component has been done.