How important is the stock market effect on consumption?

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How important is the stock market effect on consumption?

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Sydney Ludvigson
Charles Steindel

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Abstract

The 1990s have seen astonishing growth in the stock market portfolios of Americans, which many have argued has been a major force behind the growth of consumer spending. This paper reviews the relationship between the stock market and the consumer. Using a variety of econometric techniques and specifications, we fail to find evidence of a stable relationship between aggregate consumer spending and changes in aggregate household wealth. While stock market gains have surely provided some support for consumer spending, our hard knowledge is too limited to feel comfortable relying on estimates of the stock market effect in macroeconomic forecasts.

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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9821.

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Date of creation: 1998
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Handle: RePEc:fip:fednrp:9821

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Article
- 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. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-1998-10-15 (All new papers)
NEP-FMK-1998-10-15 (Financial Markets)

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Other versions:
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repec:fth:harver:1435 is not listed on IDEAS
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Other versions:
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