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Resurrecting the Wealth Effect on Consumption: Further Analysis and Extension

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  • Nicholas Apergis

    (University of Macedonia)

  • Stephen M. Miller

    (University of Connecticut and University of Nevada, Las Vegas)

Abstract

This paper investigates whether various components of wealth affect real consumption asymmetrically through a threshold adjustment model. The empirical findings for the U.S. show that only stock market assets, financial assets including stock market assets, and household net assets exert a practical wealth effect on consumption expenditure. By contrast, financial assets excluding stock market assets, tangible assets, total assets, and the Lettau-Ludvigson measure of net assets do not exert a practical wealth effect on consumption expenditure. In addition, the empirical findings favor the presence of an asymmetric effect on real consumption for the former cases, with negative 'news' affecting consumption less than positive 'news'.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-57.

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Length: 32 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:uct:uconnp:2005-57

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Web page: http://www.econ.uconn.edu/
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Keywords: Consumption; Stock market; Wealth effect; Asymmetry;

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References

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  1. Jonathan A. Parker, 1999. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Working Papers 7238, National Bureau of Economic Research, Inc.
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  13. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.
  2. Gupta, Rangan & Modise, Mampho P., 2012. "South African stock return predictability in the context data mining: The role of financial variables and international stock returns," Economic Modelling, Elsevier, vol. 29(3), pages 908-916.

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