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The decline in household saving and the wealth effect

  • F. Thomas Juster
  • Joseph P. Lupton
  • James P. Smith
  • Frank Stafford

Using a unique set of household level panel data, we estimate the effect of capital gains on saving by asset type, controlling for observable and unobservable household specific fixed effects. The results suggest that the decline in the personal saving rate since 1984 is largely due to the significant capital gains in corporate equities experienced over this period. Over five-year periods, the effect of capital gains in corporate equities on saving is substantially larger than the effect of capital gains in housing or other assets. Failure to differentiate wealth affects across asset types results in a significant understatement or overstatement of the size of their impact, depending on the asset.

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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 2004-32.

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Date of creation: 2004
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Handle: RePEc:fip:fedgfe:2004-32
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  1. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  2. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," Working Papers 97035, Stanford University, Department of Economics.
  3. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
  4. Sanford J. Grossman & Guy Laroque, 1987. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," NBER Working Papers 2369, National Bureau of Economic Research, Inc.
  5. Jonathan A. Parker, 1999. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Working Papers 7238, National Bureau of Economic Research, Inc.
  6. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
  7. F. Thomas Juster & James P. Smith, 2004. "Improving the Quality of Economic Data: Lessons from the HRS and AHEAD," Labor and Demography 0402010, EconWPA.
  8. Gary V. Engelhardt, 1995. "House Prices and Home Owner Saving Behavior," NBER Working Papers 5183, National Bureau of Economic Research, Inc.
  9. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  10. Lupton, J. & Smith, J.P., 1999. "Marriage, Assets, and Savings," Papers 99-12, RAND - Labor and Population Program.
  11. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  12. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 305-324, May.
  13. Mankiw, N.G. & Zeldes, S.P., 1990. "The Consumption Of Stockholders And Non-Stockholders," Weiss Center Working Papers 23-90, Wharton School - Weiss Center for International Financial Research.
  14. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  15. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section 114, Board of Governors of the Federal Reserve System (U.S.).
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