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On Wealth Volatility, Asymmetries And The Average Propensity To Consume In The United States

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  • Mark J. HOLMES
  • Xin SHEN

Abstract

We explore the relationship between the volatility of wealth and consumption expenditure in the US. Using a GARCH-in-mean VAR model, we find that increases in the volatility of the wealth to income ratio leads to a fall in the average propensity to consume. Further analysis suggests that the effects of negative shocks to the wealth to income ratio have more persistence than equal but opposite positive shocks.

Suggested Citation

  • Mark J. HOLMES & Xin SHEN, 2015. "On Wealth Volatility, Asymmetries And The Average Propensity To Consume In The United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 69-78.
    • Handle: RePEc:eaa:aeinde:v:15:y:2015:i:1_6
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    Keywords

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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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