Advanced Search
MyIDEAS: Login

A primer on the economics and time series econometrics of wealth effects

Contents:

Author Info

  • Morris A. Davis
  • Michael G. Palumbo

Abstract

This paper reviews the statistical approach typically applied by macroeconomists to investigate the empirical links among aggregate data on household consumption, income, and wealth. In particular, we focus on studies determining whether and how much changes in net worth, such as those generated by the stock-market boom in the U.S. over the latter 1990s, are responsible for subsequent swings in the growth rate of consumer spending. We show how simple economic theory is used to motivate an econometric strategy that consists of two stages of analysis. First, regressions are used to identify trend movements shared by consumption, income, and wealth over the long run, then deviations of these series from their commong long- run trends are used to help forecast consumption growth over the short run. Our discussion highlights the various judgments that researchers must make in the course of implementing this empirical approach, and we detail how specific parameter estimates describing the magnitude of the wealth effect on consumption--and even broad conclusions about its existence--are affected by making alternative choices.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.federalreserve.gov/pubs/feds/2001/200109/200109abs.html
Download Restriction: no

File URL: http://www.federalreserve.gov/pubs/feds/2001/200109/200109pap.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-09.

as in new window
Length:
Date of creation: 2001
Date of revision:
Handle: RePEc:fip:fedgfe:2001-09

Contact details of provider:
Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page: http://www.federalreserve.gov/
More information through EDIRC

Order Information:
Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

Related research

Keywords: Consumption (Economics) ; Wealth;

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
  2. Janine Aron & John Muellbauer, 2000. "Financial liberalisation, consumption and debt in South Africa," CSAE Working Paper Series 2000-22, Centre for the Study of African Economies, University of Oxford.
  3. F. Brayton & P. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
  4. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  5. Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
  6. Hendry, David F, 1994. "HUS Revisited," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 86-106, Summer.
  7. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
  8. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348 National Bureau of Economic Research, Inc.
  9. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
  10. Christensen, Anders Moller & Knudsen, Dan, 1992. "MONA: A quarterly model of the Danish economy," Economic Modelling, Elsevier, vol. 9(1), pages 10-74, January.
  11. P.A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
  12. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  13. Julia Campos & Neil R. Ericsson, 1999. "Contructive data mining: modeling consumers' expenditure in Venezuela," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 226-240.
  14. Bradley, John & Whelan, Karl & Wright, Jonathan, 1995. "HERMIN Ireland," Economic Modelling, Elsevier, vol. 12(3), pages 249-274, July.
  15. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2, October.
  16. Berg, Lennart & Bergstrom, Reinhold, 1995. " Housing and Financial Wealth, Financial Deregulation and Consumption--The Swedish Case," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 421-39, September.
  17. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  18. Lattimore, Ralph, 1994. "Australian Consumption and Saving," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 54-70, Summer.
  19. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  20. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  21. Brooks, Ray & Gibbs, Darren, 1994. "A model of the New Zealand economy Reserve Bank Model XII," Economic Modelling, Elsevier, vol. 11(1), pages 5-86, January.
  22. Rae, David, 1996. "NBNZ-DEMONZ: A dynamic equilibrium model of New Zealand," Economic Modelling, Elsevier, vol. 13(1), pages 91-165, January.
  23. Jacobs, Jan & Sterken, Elmer, 1995. "The IBS-CCSO quarterly model of the Netherlands Specification, simulation and analysis," Economic Modelling, Elsevier, vol. 12(2), pages 111-163, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2001-09. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.