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Wealth Effects and the New Economy

  • Torsten Sløk
  • Hali J. Edison

This paper investigates if there is a different impact from changes in "new" and "old" economy stock valuations on private consumption. Estimating a reduced-form VAR for seven OECD countries for the 1990s, it is found that the impact from changes in old economy stock valuations on consumption is in general larger in the United States, Canada, and United Kingdom than in continental Europe. Furthermore, the impact from changes in new economy valuations to consumption is roughly the same in the United States, Canada, and United Kingdom and in continental Europe. Finally, the results suggest that in continental Europe the impact on consumption from changes in the valuation of new economy stocks is bigger than from the old economy stocks, whereas for the United States, Canada, and United Kingdom the impact is more or less the same between the two sectors.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/77.

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Length: 22
Date of creation: 01 May 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/77
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  1. Bayoumi, Tamim, 2001. "The morning after: explaining the slowdown in Japanese growth in the 1990s," Journal of International Economics, Elsevier, vol. 53(2), pages 241-259, April.
  2. Laurence Boone & Claude Giorno & Pete Richardson, 1998. "Stock Market Fluctuations and Consumption Behaviour: Some Recent Evidence," OECD Economics Department Working Papers 208, OECD Publishing.
  3. Torsten Sløk & Hali J. Edison, 2001. "New Economy Stock Valuations and Investmen in the 1990's," IMF Working Papers 01/78, International Monetary Fund.
  4. John Y. Campbell, 1998. "Asset Prices, Consumption, and the Business Cycle," NBER Working Papers 6485, National Bureau of Economic Research, Inc.
  5. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Journal of Finance, American Finance Association, vol. 55(4), pages 1515-1567, 08.
  6. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  7. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
  8. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  9. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
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