specifications of consumption function. All the data series of aggregate wealth and consumption variables are taken from Annual Report of National Accounts. The sample period(1970-1992) is divided into five sub-periods: 1970-75, 1975-80, 1980-85, 1985-90, 1990-92. The first column is based on the traditional consumption function with total wealth as a wealth variable. The second to four columns correspond to the specification with net financial wealth and tangible wealth. The five to seven columns compute the contribution of liquid and tangible wealth based on the most plausible specification (the third row in Table 1). What is common to every case is that contribution of wealth to final consumption is increasing over time as the wealth accumulates in the household sector. It should be noted that the wealth stock changes via either saving or change in asset prices, latter of which is especially important in the recent phase of business cycles. Another important findings are that the magnitude of wealth effect is substantially smaller under the traditional specification with the total wealth as a wealth variable than under the specification with liquid wealth and tangible wealth separately as explanatory variables. In the period of 1985 to 1990 the contribution of total wealth to final consumption is 24.4%, while that of liquid wealth and tangible wealth combined together amounts to 58.4%. It implies that more than half of the fluctuations of final consumption in the recent business upturns can be explained by the wealth effects.

As for the relative magnitude of liquid and tangible wealth, the former explains 47% of the change of final consumption during 1985-90, while the latter explains only 10.7%. This indicates the quantitative importance of liquid wealth in affecting the level of consumption spending.

Next we analyze which category of consumption is most affected by a change of wealth stock. Specifically we can break down a change in final consumption which is brought by the wealth change into that for each group of commodities. It can be done by computing the following ratios. The denominator is the change in final consumption brought forth by wealth change and computed on the basis of the specification with liquid and tangible wealth. The numerator is a change in expenditure for clothes, housing and miscellaneous items that is brought forth by wealth change. The Specification on which calculation is based are that with liquid wealth only for clothes and miscellaneous items and with liquid and tangible wealth for housing. Table 5 shows the results. It is clear that the contribution of housing is almost the same in magnitude as that of miscellaneous items. About 48% of change in final consumption brought forth by wealth change is attributed to housing and miscellaneous items equally in the period of 1985-1990. Only 8% is attributed to clothing. $ ^{9)} $

### 7 \. Concluding Remarks

This study investigated empirically the role of wealth in the behavior of Japanese households from two standpoints. One is concerned with the problem of relevant concepts of wealth in consumption decision by households. The other is which component of consumption spending is affected by wealth. Our findings are summarized as follows: Financial wealth and tangible wealth