How large are housing and financial wealth effects? A new approach

Christopher Carroll, Jiri Slacalek and Misuzu Otsuka

No 1283, Working Paper Series from European Central Bank

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. JEL Classification: E21, E32, C22

Keywords: Asset Prices; consumption dynamics; Housing wealth; wealth effect (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-mic and nep-ure
Note: 1111765
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Citations: View citations in EconPapers (28)

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Related works:
Journal Article: How Large Are Housing and Financial Wealth Effects? A New Approach (2011)
Journal Article: How Large Are Housing and Financial Wealth Effects? A New Approach (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101283

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