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How important is the stock market effect on consumption?

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  • Sydney Ludvigson
  • Charles Steindel

Abstract

The 1990s have seen astonishing growth in the stock market portfolios of Americans, which many have argued has been a major force behind the growth of consumer spending. This paper reviews the relationship between the stock market and the consumer. Using a variety of econometric techniques and specifications, we fail to find evidence of a stable relationship between aggregate consumer spending and changes in aggregate household wealth. While stock market gains have surely provided some support for consumer spending, our hard knowledge is too limited to feel comfortable relying on estimates of the stock market effect in macroeconomic forecasts.

Suggested Citation

  • Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9821
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    References listed on IDEAS

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    Keywords

    Investments; Wealth; Consumption (Economics);

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