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The effects of stock market movements on consumption and investment: does the shock matter?

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  • Stephen Millard
  • John Power

Abstract

This paper uses a simple model to examine the links between equity price movements and consumption and investment. Generally, the effect of a given movement in equity prices on consumption depends on the underlying source of the shock to equity prices, and some empirical evidence is presented that supports this. Furthermore, in the model the effect of a given movement in equity prices on investment does not depend on the source of the shock. However, some theoretical arguments and empirical evidence are provided to suggest that it might in the real world.

Suggested Citation

  • Stephen Millard & John Power, 2004. "The effects of stock market movements on consumption and investment: does the shock matter?," Bank of England working papers 236, Bank of England.
  • Handle: RePEc:boe:boeewp:236
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP236.pdf
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    12. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. repec:spr:soinre:v:133:y:2017:i:3:d:10.1007_s11205-016-1409-z is not listed on IDEAS
    2. Goodness C. Aye & Rangan Gupta & Alain Kaninda & Wendy Nyakabawo & Aarifah Razak, 2013. "House Price, Stock Price and Consumption in South Africa: A Structural VAR Approach," Working Papers 201309, University of Pretoria, Department of Economics.
    3. Roy Cromb & Emilio Fernandez-Corugedo, 2004. "Long-term interest rates, wealth and consumption," Bank of England working papers 243, Bank of England.

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