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Wealth and asset price effects on economic activity

  • Filippo Altissimo
  • Evaggelia Georgiou
  • Teresa Sastre
  • Maria Teresa Valderrama
  • Gabriel Sterne
  • Marc Stocker
  • Mark Weth
  • Karl Whelan
  • Alpo Willman

Do asset prices affect real activity? This question has taken on a new importance in recent years, as asset values first surged at the end of 1990s and, thereafter, dramatically retreated. This report reviews the available theoretical and empirical evidence regarding asset price and wealth effects in Europe and some other major economies. The main focus of this report is on consumption effects via the wealth channel, reflecting the bulk of literature on the effects of asset prices. However, asset price effects on investment via the Tobin’s-Q channel, balance sheet and confidence channels are also reviewed. The available evidence supports the view that the wealth channel is the most important of various channels. There is little empirical evidence indicating that the Tobin’s-Q, balance-sheet and confidence channels play any major independent role in the transmission of asset price effects to economic activity.

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File URL: http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp29.pdf
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Paper provided by European Central Bank in its series Occasional Paper Series with number 29.

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Length: 64 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:ecb:ecbops:20050029
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  1. Andrea Enria & Lorenzo Cappiello & Frank Dierick & Sergio Grittini & Andrew Haralambous & Angela Maddaloni & Philippe Molitor & Fatima Pires & Paolo Poloni, 2004. "Fair value accounting and financial stability," Occasional Paper Series 13, European Central Bank.
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  7. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
  8. Fernando Gonzalez & François Haas & Ronald Johannes & Mattias Persson & Liliana Toledo & Roberto Violi & Martin Wieland & Carmen Zins, 2004. "Market dynamics associated with credit ratings - a literature review," Occasional Paper Series 16, European Central Bank.
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  10. ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
  11. Guido Wolswijk & Jakob de Haan, 2005. "Government debt management in the euro area - recent theoretical developments and changes in practices," Occasional Paper Series 25, European Central Bank.
  12. Filippo Altissimo & Evaggelia Georgiou & Teresa Sastre & Maria Teresa Valderrama & Gabriel Sterne & Marc Stocker & Mark Weth & Karl Whelan & Alpo Willman, 2005. "Wealth and asset price effects on economic activity," Occasional Paper Series 29, European Central Bank.
  13. Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank.
  14. Francesco Mazzaferro & Arnaud Mehl & Michael Sturm & Christian Thimann & Adalbert Winkler, 2002. "Economic relations with regions neighbouring the euro area in the ‘euro time zone," Occasional Paper Series 07, European Central Bank.
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