The Stock Market and the Consumer Confidence Channel in Canada
AbstractWhen stock prices rise, so does aggregate consumer spending. A traditional explanation for this phenomenon is based on wealth effects. However, movements of the stock market may affect consumer spending indirectly, by influencing consumer confidence. A bullish stock market may make consumers feel more optimistic about the future of the aggregate economy, and hence increase their spending. This paper investigates the existence of the consumer confidence channel of asset price transmission in Canada. The analysis is based on the indices of consumer confidence from the Conference Board of Canada and the Toronto Stock Exchange index. The results are supportive of the consumer confidence channel at the national level. There is also evidence of asymmetric effects of stock price changes on confidence changes: declines of the stock index have larger and statistically more significant effects relative to its increases.
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Bibliographic InfoPaper provided by University of Ottawa, Department of Economics in its series Working Papers with number 1004E.
Length: 20 pages
Date of creation: 2010
Date of revision:
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Stock market; Consumer confidence; Wealth; Asymmetry.;
Other versions of this item:
- Lilia Karnizova & Hashmat U. Khan, 2010. "The Stock Market and the Consumer Confidence Channel in Canada," Carleton Economic Papers 10-08, Carleton University, Department of Economics, revised 26 Aug 2011.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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