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Stock market wealth and consumer spending

Author Info

Listed author(s):
  • Martha Starr-McCluer

Abstract

This paper investigates the effects of stock market wealth on consumer spending. Traditional macroeconometric models estimate that a dollar's increase in stock market wealth boosts consumer spending by 3-7 cents per year. 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 reviewing previous research, I present new evidence from the SRC Surveys of Consumers. The survey results are broadly consistent with lifecycle 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.

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File URL: http://www.federalreserve.gov/pubs/feds/1998/199820/199820abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1998/199820/199820pap.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-20.

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Date of creation: 1998
Handle: RePEc:fip:fedgfe:1998-20
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Keywords: Consumer behavior ; Wealth ; Stock market;

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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.
  2. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
  3. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
  4. Laitner, John & Juster, F Thomas, 1996. "New Evidence on Altruism: A Study of TIAA-CREF Retirees," American Economic Review, American Economic Association, vol. 86(4), pages 893-908, September.
  5. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-577, June.
  6. J. Dominitz & C. F. Manski, "undated". "Perceptions of Economic Insecurity: Evidence from the Survey of Economic Expectations," Institute for Research on Poverty Discussion Papers 1105-96, University of Wisconsin Institute for Research on Poverty.
  7. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  8. Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family finances in the U.S.: recent evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-24.
  9. Wilhelm, Mark O, 1996. "Bequest Behavior and the Effect of Heirs' Earnings: Testing the Altruistic Model of Bequests," American Economic Review, American Economic Association, vol. 86(4), pages 874-892, September.
  10. Friend, Irwin & Lieberman, Charles, 1975. "Short-Run Asset Effects on Household Saving and Consumption: The Cross-Section Evidence," American Economic Review, American Economic Association, vol. 65(4), pages 624-633, September.
  11. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  12. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-192, May.
  13. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-453, May.
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