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How the Housing and Financial Wealth Effects have changed over Time

  • Ryan R. Brady

    ()

    (United States Naval Academy)

  • Derek Stimel

    ()

    (Menlo College)

We measure the “evolution” of the housing and financial wealth effects over time by estimating the dynamic responses of consumption to both forms of wealth in the United States over different time periods from 1952 to 2009. To understand how the housing and financial wealth effects have changed over time, we use a combination of recent time series techniques, including system structural break tests and linear projections to estimate impulse response functions over relatively short sub-samples. Our key results are that the housing wealth effect gets larger over time, with the largest effect apparent after 1998; while the financial wealth effect diminishes over the same sub-samples, even over periods that include the equities boom of the 1990s. Our results provide insight into what mechanisms may explain the differing responses of consumption to wealth.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp31.pdf
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Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 31.

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Length: 46 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:usn:usnawp:31
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  1. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  2. Michael Palumbo & Jeremy Rudd & Karl Whelan, 2002. "On the relationships between real consumption, income and wealth," Finance and Economics Discussion Series 2002-38, Board of Governors of the Federal Reserve System (U.S.).
  3. Ryan R. Brady, 2007. "Consumer Credit, Liquidity and the Transmission Mechanism of Monetary Policy," Departmental Working Papers 20, United States Naval Academy Department of Economics.
  4. Martha Starr-McCluer, 1998. "Stock market wealth and consumer spending," Finance and Economics Discussion Series 1998-20, Board of Governors of the Federal Reserve System (U.S.).
  5. Jeremy Rudd & Karl Whelan, 2006. "Empirical Proxies for the Consumption-Wealth Ratio," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 34-51, January.
  6. Eugene N. White, 2006. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," NBER Working Papers 12138, National Bureau of Economic Research, Inc.
  7. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications 04-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  8. Brady, Ryan R., 2008. "Structural breaks and consumer credit: Is consumption smoothing finally a reality?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1246-1268, September.
  9. Ryan R. Brady & Victoria A. Greenfield, 2010. "COMPETING EXPLANATIONS OF U.S. DEFENSE INDUSTRY CONSOLIDATION IN THE 1990s AND THEIR POLICY IMPLICATIONS," Contemporary Economic Policy, Western Economic Association International, vol. 28(2), pages 288-306, 04.
  10. Kennickell, Arthur B & Starr-McCluer, Martha, 1997. "Retrospective Reporting of Household Wealth: Evidence from the 1983-1989 Survey of Consumer Finances," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 452-63, October.
  11. Stimel Derek, 2009. "A Statistical Analysis of NFL Quarterback Rating Variables," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 5(2), pages 1-26, May.
  12. Kilian, Lutz & Chang, Pao-Li, 2000. "How accurate are confidence intervals for impulse responses in large VAR models?," Economics Letters, Elsevier, vol. 69(3), pages 299-307, December.
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