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How the Housing and Financial Wealth Effects Have Changed over Time

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  • Brady Ryan R

    ()
    (United States Naval Academy)

  • Stimel Derek S

    ()
    (Menlo College)

Abstract

We measure the “evolution” of the housing and financial wealth effects in the United States over different time periods from 1952 to 2009. To understand how the housing and financial wealth effects have changed over time, we use a combination of recent time series techniques, including system structural break tests and linear projections, to estimate impulse response functions of consumption to both forms of wealth over relatively short sub-samples. Our key results are that the housing wealth effect gets larger over time, with the largest effect apparent after 1998; while the financial wealth effect diminishes over the same sub-samples, even over a period that includes the equities boom of the 1990s. Our results provide insight into what mechanisms may explain the differing responses of consumption to wealth.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (August)
Pages: 1-45

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:28

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References

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  1. Palumbo, Michael & Rudd, Jeremy & Whelan, Karl, 2002. "On the Relationships Between Real Consumption, Income, and Wealth," Research Technical Papers 4/RT/02, Central Bank of Ireland.
  2. Eugene N. White, 2006. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," NBER Working Papers 12138, National Bureau of Economic Research, Inc.
  3. Karl E. Case, John M. Quigley, Robert J. Shiller., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Economics Working Papers E01-308, University of California at Berkeley.
  4. Ryan R. Brady & Victoria A. Greenfield, 2009. "Competing Explanations of U.S. Defense Industry Consolidation in the 1990s and Their Policy Implications," Departmental Working Papers 22, United States Naval Academy Department of Economics.
  5. Jeremy Rudd & Karl Whelan, 2006. "Empirical Proxies for the Consumption-Wealth Ratio," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 34-51, January.
  6. Kilian, Lutz & Chang, Pao-Li, 2000. "How accurate are confidence intervals for impulse responses in large VAR models?," Economics Letters, Elsevier, vol. 69(3), pages 299-307, December.
  7. Kennickell, Arthur B & Starr-McCluer, Martha, 1997. "Retrospective Reporting of Household Wealth: Evidence from the 1983-1989 Survey of Consumer Finances," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 452-63, October.
  8. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications 04-12, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  9. Ryan R. Brady, 2011. "Consumer Credit, Liquidity, And The Transmission Mechanism Of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 246-263, 01.
  10. Brady, Ryan R., 2008. "Structural breaks and consumer credit: Is consumption smoothing finally a reality?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1246-1268, September.
  11. Martha Starr-McCluer, 1998. "Stock market wealth and consumer spending," Finance and Economics Discussion Series 1998-20, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Yu Zhu & Randall Wright & Chao He, 2012. "Housing and Liquidity," 2012 Meeting Papers 94, Society for Economic Dynamics.
  2. Beatrice D. Simo-Kengne & Stephen M. Miller & Rangan Gupta & Goodness C. Aye, 2013. "Time-Varying Effects of Housing and Stock Prices on U.S. Consumption," Working Papers 201325, University of Pretoria, Department of Economics.
  3. Ryan Brady, 2013. "The Spatial Diffusion of Regional Housing Prices across U.S. States," Departmental Working Papers 45, United States Naval Academy Department of Economics.
  4. Ryan R. Brady & Derek Stimel & Steven Sumner, 2012. "A Time Series Test of the Direct Wealth Effect," Departmental Working Papers 40, United States Naval Academy Department of Economics.

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