On the Stability of the Wealth Effect
Evidence of instability of the wealth effect in the USA is presented through the estimation of a Markov switching model of the long-run aggregate consumption function. The dating of the regimes appears to bear relation to movements in asset prices. A model-based explanation of the findings is suggested, highlighting the importance of the short-run relation between consumption, income and wealth in explaining the estimated long-run coefficients.
|Date of creation:||Jun 2005|
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