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Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption

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Listed author(s):
  • Duca, John V.

    (Federal Reserve Bank of Dallas)

Abstract

Lower mutual fund loads have plausibly boosted the stock wealth elasticity of U.S. consumption by enhancing stock liquidity and arguably by inducing stock ownership among middle-income families, consistent with theory and cross-section data (Guiso, Haliassios, and Jappelli (2003), Haliassios (2002), Heaton and Lucas (1996, 2000), and Vissing-Jorgensen (2002)). In load-modified models, the stock wealth elasticity is declining in loads and more stable long-run wealth and income coefficients arise, especially controlling for mortgage refinancing and equity withdrawal activity. Modified models imply that the stock wealth elasticity has risen, while conventional models overestimate the wealth and underestimate the income elasticities of consumption.

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File URL: http://dallasfed.org/assets/documents/research/papers/2005/wp0511.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0511.

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Length: 36 pages
Date of creation: 2005
Handle: RePEc:fip:feddwp:05-11
Note: Published as: Duca, John V. (2006), "Mutual Funds and the Evolving Long-Run Effects of Stock Wealth on U.S. Consumption," Journal of Economics and Business 58 (3): 202-221.
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Cited by:

  1. Duca, John V. & Muellbauer, John & Murphy, Anthony, 2010. "Housing markets and the financial crisis of 2007-2009: Lessons for the future," Journal of Financial Stability, Elsevier, vol. 6(4), pages 203-217, December.
  2. Anderson, Richard G. & Bordo, Michael D. & Duca, John V., 2015. "Money and velocity during financial crises: from the Great Depression to the Great Recession," Working Papers 1503, Federal Reserve Bank of Dallas, revised 01 May 2015.
  3. Fabio Milani, 2008. "Learning about the Interdependence between the Macroeconomy and the Stock Market," Working Papers 070819, University of California-Irvine, Department of Economics.
  4. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.

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