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Stock Market Wealth and the Real Economy: A Local Labor Market Approach

Author

Listed:
  • Gabriel Chodorow-Reich
  • Plamen T. Nenov
  • Alp Simsek

Abstract

We provide evidence of the stock market consumption wealth effect by using a local labor market analysis. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, with no effect on employment in tradable industries. In a model of geographic heterogeneity in stock wealth, these responses imply an MPC of 3.2 cents per year and that a 20 percent increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7 percent and aggregate hours by at least 0.7 percent two years after the shock.

Suggested Citation

  • Gabriel Chodorow-Reich & Plamen T. Nenov & Alp Simsek, 2021. "Stock Market Wealth and the Real Economy: A Local Labor Market Approach," American Economic Review, American Economic Association, vol. 111(5), pages 1613-1657, May.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:5:p:1613-57
    DOI: 10.1257/aer.20200208
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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    1. Stock Market Wealth and the Real Economy: A Local Labor Market Approach (AER 2021) in ReplicationWiki

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