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How the Housing and Financial Wealth Effects have changed over Time

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  • Ryan R. Brady

    ()
    (United States Naval Academy)

  • Derek Stimel

    ()
    (Menlo College)

Abstract

We measure the “evolution” of the housing and financial wealth effects over time by estimating the dynamic responses of consumption to both forms of wealth in the United States over different time periods from 1952 to 2009. To understand how the housing and financial wealth effects have changed over time, we use a combination of recent time series techniques, including system structural break tests and linear projections to estimate impulse response functions over relatively short sub-samples. Our key results are that the housing wealth effect gets larger over time, with the largest effect apparent after 1998; while the financial wealth effect diminishes over the same sub-samples, even over periods that include the equities boom of the 1990s. Our results provide insight into what mechanisms may explain the differing responses of consumption to wealth.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp31.pdf
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Bibliographic Info

Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 31.

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Length: 46 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:usn:usnawp:31

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  1. Martha Starr-McCluer, 1998. "Stock market wealth and consumer spending," Finance and Economics Discussion Series 1998-20, Board of Governors of the Federal Reserve System (U.S.).
  2. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt44k6g6vx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Ryan R. Brady, 2011. "Consumer Credit, Liquidity, And The Transmission Mechanism Of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 246-263, 01.
  4. Michael Palumbo & Jeremy Rudd & Karl Whelan, 2002. "On the relationships between real consumption, income and wealth," Finance and Economics Discussion Series 2002-38, Board of Governors of the Federal Reserve System (U.S.).
  5. Eugene N. White, 2006. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," NBER Working Papers 12138, National Bureau of Economic Research, Inc.
  6. Kennickell, Arthur B & Starr-McCluer, Martha, 1997. "Retrospective Reporting of Household Wealth: Evidence from the 1983-1989 Survey of Consumer Finances," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 452-63, October.
  7. Ryan R. Brady, 2006. "Structural Breaks and Consumer Credit: Is Consumption Smoothing Finally a Reality?," Departmental Working Papers 13, United States Naval Academy Department of Economics.
  8. Ryan R. Brady & Victoria A. Greenfield, 2009. "Competing Explanations of U.S. Defense Industry Consolidation in the 1990s and Their Policy Implications," Departmental Working Papers 22, United States Naval Academy Department of Economics.
  9. Kilian, Lutz & Chang, Pao-Li, 2000. "How accurate are confidence intervals for impulse responses in large VAR models?," Economics Letters, Elsevier, vol. 69(3), pages 299-307, December.
  10. Jeremy Rudd & Karl Whelan, 2006. "Empirical Proxies for the Consumption-Wealth Ratio," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 34-51, January.
  11. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications 04-12, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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Cited by:
  1. Beatrice D. Simo-Kengne & Stephen M. Miller & Rangan Gupta & Goodness C. Aye, 2013. "Time-Varying Effects of Housing and Stock Prices on U.S. Consumption," Working Papers 201325, University of Pretoria, Department of Economics.
  2. Yu Zhu & Randall Wright & Chao He, 2013. "Housing and Liquidity," 2013 Meeting Papers 168, Society for Economic Dynamics.
  3. Ryan R. Brady & Derek Stimel & Steven Sumner, 2012. "A Time Series Test of the Direct Wealth Effect," Departmental Working Papers 40, United States Naval Academy Department of Economics.
  4. Ryan Brady, 2013. "The Spatial Diffusion of Regional Housing Prices across U.S. States," Departmental Working Papers 45, United States Naval Academy Department of Economics.

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