Wealth and asset price effects on economic activity
AbstractDo 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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Bibliographic InfoPaper provided by European Central Bank in its series Occasional Paper Series with number 29.
Length: 64 pages
Date of creation: Jun 2005
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Find related papers by JEL classification:
- D1 - Microeconomics - - Household Behavior
- D3 - Microeconomics - - Distribution
- D9 - Microeconomics - - Intertemporal Choice
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-EEC-2005-12-01 (European Economics)
- NEP-FIN-2005-12-01 (Finance)
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