Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153717
Authors: 
Carroll, Christopher D.
Otsuka, Misuzu
Slacalek, Jiri
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1283
Abstract: 
This paper presents a simple new method for measuring `wealth effects' on aggregate consumption. The method exploits the stickiness of consumption growth (sometimes interpreted as reflecting consumption `habits') to distinguish between immediate and eventual wealth effects. In U.S. data, we estimate that the immediate (next-quarter) marginal propensity to consume from a change in housing wealth is about 2 cents, with a final eventual effect around 9 cents, substantially larger than the effect of shocks to financial wealth. We argue that our method is preferable to cointegration-based approaches, because neither theory nor evidence supports faith in the existence of a stable cointegrating vector.
Subjects: 
asset prices
Consumption Dynamics
housing wealth
wealth effect
JEL: 
E21
E32
C22
Document Type: 
Working Paper

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