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Stock Market Wealth and Consumption

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  • James M. Poterba

Abstract

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.

Suggested Citation

  • James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  • 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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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.14.2.99
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    References listed on IDEAS

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    5. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387 National Bureau of Economic Research, Inc.
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    7. 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.
    8. Bhatia, Kul B, 1972. "Capital Gains and the Aggregate Consumption Function," American Economic Review, American Economic Association, vol. 62(5), pages 866-879, December.
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    11. 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.
    12. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
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    15. 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.
    16. 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.
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    19. repec:fth:prinin:413 is not listed on IDEAS
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    21. 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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    More about this item

    JEL classification:

    • 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
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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