Winning student research analyses spending and wealth

When share prices and real estate prices are on the rise, it’s perhaps not surprising that consumer spending rises. Correspondingly, when share and property values fall - as during the recent financial crisis - it might be expected that consumption would decline.

Spending More

In fact, that’s not always the case: figures from the US show household spending actually increased between 2006 and 2009, and a similar effect was seen in the wake of the dotcom crisis in 2000-2001.

So what is the relationship between wealth and consumption? That’s the question asked by University of Waikato Management School PhD student Xin Shen in a paper presented at the 15th annual WMS Student Research Conference last week.

His paper "Financial wealth, housing wealth, and consumption: A regime-switching perspective" shared the conference’s $1,000 Best Paper Prize with a paper on adaptive leadership in virtual teams by Auckland University’s Young Hun Ji.

Regime-switching Model

Shen’s paper uses a regime-switching model to investigate the relative importance of financial wealth and housing wealth on the movement of consumption. Regime-switching involves predicting turning points (for example, between bull and bear markets) as opposed to a linear model.

“There isn’t always a stable relationship between wealth and consumption,” says Shen. “Using a regime-switching model, we can see there are different effects in different time periods, although overall people tend to spend more when property values rise compared to an increase in share prices.”

The $500 Best Presentation Prize was won by Waikato Management School honours student Briar Thompson who delivered a paper entitled "Flies in their eyes: Stereotypes, poverty porn, and the effects of the visual representation of the majority world".

The same week Thompson learned that she had been awarded one of just three Rhodes Scholarships nationwide for postgraduate study at Oxford in 2012.

The one-day student research conference saw students delivering papers on a range of other topics including the work-alcohol relationship and the current news discourse around global warming, and how this affects the credibility -- and hence competitiveness – of ‘green’ nation-brands like New Zealand.