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Property of stocks and wealth effects on consumption



Recent fluctuations of financial markets, especially, stock markets fluctuations, have revived the interest concerning the dynamics of real economic activity, namely, of private consumption. In this work, the role of stock market as a determinant of private consumption is analyzed, namely, by the consideration of wealth effects. It is also analyzed the potential differences of these effects originated by different categories of property of stocks (direct versus indirect property). Using a sample for the U. S. economy, in the period 1952:Q1 - 2001:Q4, several long-run relationships were estimated, suggesting that wealth effects associated to direct property are about 3.5 times superior to those associated to indirect property. Short-run dynamics is analyzed with the estimation of a single equation, suggesting that consumption contemporaneously answers to changes in income and in wealth and that the adjustment to long-run component is very slow, which constitutes an indicator that consumers gradually change their behaviors, possibly, due to habit formation. There is also evidence supporting the presence of the indirect channel of wealth effect.

Suggested Citation

  • Ricardo M. Sousa, 2003. "Property of stocks and wealth effects on consumption," NIPE Working Papers 2/2003, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:2/2003

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    Cited by:

    1. Ricardo M. Sousa, 2009. "Wealth Effetcs on Consumption: Evidence from the euro area," NIPE Working Papers 12/2009, NIPE - Universidade do Minho.
    2. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 606-622, September.
    3. Simone Salotti, 2012. "Wealth Effects in the US: Evidence from the Combination of Two Surveys," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 67-98.
    4. Simone Salotti, 2010. "An appraisal of the wealth effect in the US: evidence from pseudo-panel data," Working Papers - Mathematical Economics 2010-06, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    5. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel S., 2012. "Wealth effects in emerging market economies," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 155-166.
    6. Ricardo M. Sousa, 2010. "How do Consumption and Asset Returns React to Wealth Shocks? Evidence from the U.S. and the U.K," NIPE Working Papers 14/2010, NIPE - Universidade do Minho.
    7. Khalifa, Sherif & Seck, Ousmane & Tobing, Elwin, 2013. "Housing wealth effect: Evidence from threshold estimation," Journal of Housing Economics, Elsevier, vol. 22(1), pages 25-35.

    More about this item


    stock market; wealth; consumption; cointegration;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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