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Stock Market Wealth and Consumer Spending

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  • Martha Starr-McCluer

Abstract

This article investigates the effects of stock market wealth on consumer spending. Traditional macroeconometric models estimate that a dollar's increase in stock wealth boosts consumption by three to seven cents. With the substantial 1990s rise in stock prices, the nature and magnitude of this "wealth effect" have been much debated. After describing the issues and previous research, I present new evidence from a well-known consumer survey. The results are broadly consistent with life-cycle saving and a modest wealth effect: most stockholders reported no appreciable effect of stock prices on their saving or spending, but many mentioned "retirement saving" in explaining their behavior. Copyright 2002, Oxford University Press.

Suggested Citation

  • Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
  • Handle: RePEc:oup:ecinqu:v:40:y:2002:i:1:p:69-79
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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