Real Estate Versus Financial Wealth in Consumption
The consumption function for the U.S. economy is estimated with real estate and financial wealth for quarterly data for 1952:1--2001:4. An additional dollar of real estate wealth increases consumption by 8 cents in the current year, as compared with only 2 cents for financial wealth. The results are consistent with theoretical bounds on the marginal propensity to consume from aggregate wealth. The decline in the stock market during 2000--2001 had a limited impact on aggregate demand in part because of an offsetting real estate wealth effect.
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