Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Martin Lettau
  • Sydney Ludvigson
  • Nathan Barczi

Abstract

In a recent paper ("A Primer on the Economics and Time Series Econometrics of Wealth Effects," 2001), Davis and Palumbo investigate the empirical relation between three cointegrated variables: aggregate consumption, asset wealth, and labor income. Although cointegration implies that an equilibrium relation ties these variables together in the long run, the authors focus on the following structural question about the short-run dynamics: "How quickly does consumption adjust to changes in income and wealth? Is the adjustment rapid, occurring within a quarter, or more sluggish, taking place over many quarters?" The authors claim that their findings answer this question, and imply that spending adjusts only gradually after gains or losses in income or wealth have been realized. We argue here, however, that a statistical methodology different from that used by Davis and Palumbo is required to address these questions, and that once it has been employed, the resulting empirical evidence weighs considerably against their interpretation of the data.

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.newyorkfed.org/research/staff_reports/sr131.html
Download Restriction: no

File URL: http://www.newyorkfed.org/research/staff_reports/sr131.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 131.

as in new window
Length:
Date of creation: 2001
Date of revision:
Handle: RePEc:fip:fednsr:131

Contact details of provider:
Postal: 33 Liberty Street, New York, NY 10045-0001
Email:
Web page: http://www.newyorkfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.ny.frb.org/rmaghome/staff_rp/

Related research

Keywords: Wealth ; Consumption (Economics) ; Income ; Asset pricing;

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. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  2. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
  3. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  4. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  5. Sydney Ludvigson & Martin Lettau, 1999. "Consumption, aggregate wealth and expected stock returns," Staff Reports 77, Federal Reserve Bank of New York.
  6. Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
  7. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
  8. John Y. Campbell, 1986. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," NBER Working Papers 1805, National Bureau of Economic Research, Inc.
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:
  1. Michael R. Donihue & Andriy Avramenko, 2006. "Decomposing consumer wealth effects: evidence on the role of real estate assets following the wealth cycle of 1990-2002," Working Papers 06-15, Federal Reserve Bank of Boston.
  2. Lise Pichette, 2004. "Are Wealth Effects Important for Canada," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 29-35.
  3. Ludwig Alexander & Sløk Torsten, 2004. "The Relationship between Stock Prices, House Prices and Consumption in OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-28, March.
  4. P.-O. Beffy & B. Monfort, 2003. "Household wealth, portfolio selection and consumption behavior," Documents de Travail de la DESE - Working Papers of the DESE g2003-08, Institut National de la Statistique et des Etudes Economiques, DESE.
  5. Fisher, Lance A. & Otto, Glenn & Voss, Graham M., 2010. "The response of Australian consumption to housing wealth," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 284-299, March.
  6. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Priceson Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
  7. Emilio Fernandez-Corugedo & Simon Price & Andrew Blake, 2003. "The dynamics of consumers' expenditure: the UK consumption ECM redux," Bank of England working papers 204, Bank of England.

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:fednsr:131. 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: (Amy Farber).

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.