The Wealth-Consumption Ratio

Adrien Verdelhan (), Stijn Van Nieuwerburgh and Hanno Lustig

No 9022, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to aggregate consumption. We find that US households have a surprising amount of total wealth, most of it human wealth. This wealth is much less risky than stock market wealth. Events in long-term bond markets, not stock markets, drive most total wealth fluctuations. The wealth effect on consumption is small and varies over time with real interest rates.

Keywords: stock market; Discount rate; Equity risk premium; Excess return; Interest rate; risk premium; Stock returns (search for similar items in EconPapers)
JEL-codes: E21 G10 G12 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Wealth-Consumption Ratio (2013)
Working Paper: The Wealth-Consumption Ratio (2008)
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