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The effects of stock market movements on consumption and investment: does the shock matter?

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  • Stephen Millard
  • John Power

Abstract

This paper uses a simple model to examine the links between equity price movements and consumption and investment. Generally, the effect of a given movement in equity prices on consumption depends on the underlying source of the shock to equity prices, and some empirical evidence is presented that supports this. Furthermore, in the model the effect of a given movement in equity prices on investment does not depend on the source of the shock. However, some theoretical arguments and empirical evidence are provided to suggest that it might in the real world.

Suggested Citation

  • Stephen Millard & John Power, 2004. "The effects of stock market movements on consumption and investment: does the shock matter?," Bank of England working papers 236, Bank of England.
    • Handle: RePEc:boe:boeewp:236
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP236.pdf
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    Cited by:

    1. Roy Cromb & Emilio Fernandez-Corugedo, 2004. "Long-term interest rates, wealth and consumption," Bank of England working papers 243, Bank of England.
    2. Jacinta C. Nwachukwu, 2017. "Tenure and Spending Within UK Households at the End of the Recent Recession," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(3), pages 1075-1104, September.
    3. Berry, Stuart & Williams, Richard & Waldron, Matthew, 2009. "Household saving," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 191-201.
    4. Goodness C. Aye & Rangan Gupta & Alain Kaninda & Wendy Nyakabawo & Aarifah Razak, 2013. "House Price, Stock Price and Consumption in South Africa: A Structural VAR Approach," Working Papers 201309, University of Pretoria, Department of Economics.

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