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Stock Market Wealth and Consumption

  • James M. Poterba

This paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending. It presents data on the distribution of corporate stock ownership based on the 1998 Survey of Consumer Finances. It also uses time-series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate "the wealth effect." It concludes that in the year after a change in stock market values, consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.14.2.99
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 14 (2000)
Issue (Month): 2 (Spring)
Pages: 99-118

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Handle: RePEc:aea:jecper:v:14:y:2000:i:2:p:99-118
Note: DOI: 10.1257/jep.14.2.99
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  1. Richard K. Green, 1999. "Stock Prices and House Prices in California: New Evidence of a Wealth Effect? A Note," Wisconsin-Madison CULER working papers 99-09, University of Wisconsin Center for Urban Land Economic Research.
  2. Imbens, G.W. & Rubin, D. & Sacerdote, B., 1999. "Estimating the effect of unearned income on labor supply, earnings, savings and consumption : Evidence from a survey of lottery players," Discussion Paper 99.34, Tilburg University, Center for Economic Research.
  3. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
  4. Jonathan S. Skinner, 1996. "Is Housing Wealth a Sideshow?," NBER Chapters, in: Advances in the Economics of Aging, pages 241-272 National Bureau of Economic Research, Inc.
  5. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1992. "The Carnegie Conjecture: Some Empirical Evidence," NBER Working Papers 4118, National Bureau of Economic Research, Inc.
  6. Flint Brayton & Peter A. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
  7. Alan Krueger, 1999. "Measuring Labor's Share," NBER Working Papers 7006, National Bureau of Economic Research, Inc.
  8. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
  9. James M. Poterba & David A. Wise, 1998. "Individual Financial Decisions in Retirement Saving Plans and the Provision of Resources for Retirement," NBER Chapters, in: Privatizing Social Security, pages 363-401 National Bureau of Economic Research, Inc.
  10. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
  11. Bhatia, Kul B, 1972. "Capital Gains and the Aggregate Consumption Function," American Economic Review, American Economic Association, vol. 62(5), pages 866-79, December.
  12. Alan Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section..
  13. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  14. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "The Carnegie Conjecture: Some Empirical Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 413-435.
  15. F. Thomas Juster & Joseph Lupton & James P. Smith & Frank Stafford, 2004. "Savings and Wealth; Then and Now," Labor and Demography 0403027, EconWPA.
  16. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
  17. Christina D. Romer, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 597-624.
  18. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  19. 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.
  20. repec:pri:indrel:413 is not listed on IDEAS
  21. repec:fth:prinin:413 is not listed on IDEAS
  22. Kasten, Richard A. & Weiner, David & Woodward, G. Thomas, 1999. "What Made Receipts Boom and When Will They Go Bust?," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 339-48, September.
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