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Wealth and asset price effects on economic activity

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Author Info
Filippo Altissimo () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Evaggelia Georgiou (Bank of Greece, 21, E. Venizelos Avenue, 10250 Athens, Greece.)
Teresa Sastre (Banco de España, Alcalá 50, 28014 Madrid, Spain.)
Maria Teresa Valderrama (Österreichische Nationalbank, Otto-Wagner-Platz 3, 1011 Vienna, Austria.)
Gabriel Sterne (Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom.)
Marc Stocker () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Mark Weth () (Deutsche Bundesbank, Wilhelm-Epstein-Strass 14, 60431 Frankfurt am Main, Germany.)
Karl Whelan (Central Bank of Ireland, Dame Street, Dublin 2, Ireland.)
Alpo Willman () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

Do asset prices affect real activity? This question has taken on a new importance in recent years, as asset values first surged at the end of 1990s and, thereafter, dramatically retreated. This report reviews the available theoretical and empirical evidence regarding asset price and wealth effects in Europe and some other major economies. The main focus of this report is on consumption effects via the wealth channel, reflecting the bulk of literature on the effects of asset prices. However, asset price effects on investment via the Tobin’s-Q channel, balance sheet and confidence channels are also reviewed. The available evidence supports the view that the wealth channel is the most important of various channels. There is little empirical evidence indicating that the Tobin’s-Q, balance-sheet and confidence channels play any major independent role in the transmission of asset price effects to economic activity.

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Publisher Info
Paper provided by European Central Bank in its series Occasional Paper Series with number 29.

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Length: 64 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:ecb:ecbops:20050029

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Related research
Keywords: household wealth; wealth channel; asset price; marginal propensity to consume; cost of capital.;

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
D3 - Microeconomics - - Distribution
D9 - Microeconomics - - Intertemporal Choice and Growth
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
    Other versions:
  2. Henrik Enderlein & Johannes Lindner & Oscar Calvo-Gonzalez & Raymond Ritter, 2005. "The EU budget – how much scope for institutional reform?," Public Economics 0509005, EconWPA. [Downloadable!]
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  3. Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank. [Downloadable!]
  4. Jesper Berg & Annalisa Ferrando & Gabe de Bondt & Silvia Scopel, 2005. "The bank lending survey for the euro area," Occasional Paper Series 23, European Central Bank. [Downloadable!]
  5. Francesco Mazzaferro & Arnaud Mehl & Michael Sturm & Christian Thimann & Adalbert Winkler, 2002. "Economic relations with regions neighbouring the euro area in the ‘euro time zone," Occasional Paper Series 07, European Central Bank. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Till van Treeck, 2008. "Asymmetric income and wealth effects in a non-linear error correction model of US consumer spending," IMK Working Paper 06-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute. [Downloadable!]
  2. Vincent Labhard & Gabriel Sterne & Chris Young, . "Wealth and consumption: an assessment of the international evidence," Bank of England working papers 275, Bank of England. [Downloadable!]
  3. Araújo, Eurilton, 2008. "Robust Monetary Policy with the Consumption-Wealth Channel," Ibmec Working Papers wpe_108, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  4. Robert Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2006. "Households' Response to Wealth Changes: Do Gains or Losses make a Difference?," DNB Working Papers 090, Netherlands Central Bank, Research Department. [Downloadable!]
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  5. Ricardo M. Sousa, 2009. "Wealth Effetcs on Consumption: Evidence from the euro area," NIPE Working Papers 12/2009, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  6. Paul Hiebert, 2006. "Household Saving and Asset Valuations in Selected Industrialised Countries," RBA Research Discussion Papers rdp2006-07, Reserve Bank of Australia. [Downloadable!]
  7. Jiri Slacalek, 2006. "What Drives Personal Consumption?: The Role of Housing and Financial Wealth," Discussion Papers of DIW Berlin 647, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  8. Frauke Skudelny, 2009. "Euro area private consumption - Is there a role for housing wealth effects?," Working Paper Series 1057, European Central Bank. [Downloadable!]
  9. Francesco FURLANETTO, 2008. "Does Monetary Policy React to Asset Prices? Some International Evidence," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 08.02, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
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