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The Decline in Household Saving and the Wealth Effect

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  • F. Thomas Juster

    (University of Michigan, Board of Governors of the Federal Reserve System, RAND)

  • Joseph P. Lupton

    (University of Michigan, Board of Governors of the Federal Reserve System, RAND)

  • James P. Smith

    (University of Michigan, Board of Governors of the Federal Reserve System, RAND)

  • Frank Stafford

    (University of Michigan)

Abstract

Using a unique set of household-level panel data, we estimate the effect of capital gains on saving by asset type, controlling for observable and unobservable household-specific fixed effects. The results suggest that the decline in the personal saving rate since 1984 is largely due to the significant capital gains in corporate equities experienced over this period. Over 5-year periods, the effect of capital gains in corporate equities on saving is substantially larger than the effect of capital gains in housing or other assets. Failure to differentiate wealth effects across asset types results in a significant understatement of their size. © 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 1 (February)
Pages: 20-27

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Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:20-27

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  1. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1221-48, September.
  2. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 26(4), pages 609-43, October.
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  4. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," NBER Working Papers 6227, National Bureau of Economic Research, Inc.
  5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
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  7. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 114, Board of Governors of the Federal Reserve System (U.S.).
  8. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
  9. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
  10. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387 National Bureau of Economic Research, Inc.
  11. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 19(2), pages 305-324, May.
  12. F. Thomas Juster & James P. Smith, 2004. "Improving the Quality of Economic Data: Lessons from the HRS and AHEAD," Labor and Demography, EconWPA 0402010, EconWPA.
  13. Lupton, J. & Smith, J.P., 1999. "Marriage, Assets, and Savings," Papers, RAND - Labor and Population Program 99-12, RAND - Labor and Population Program.
  14. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(2), pages 99-118, Spring.
  15. Gary V. Engelhardt, 1995. "House Prices and Home Owner Saving Behavior," NBER Working Papers 5183, National Bureau of Economic Research, Inc.
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