Has Broader Stock Market Participation Changed How Interest Rates Affect the Economy?

Juan M. Morelli
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Juan M. Morelli: https://www.newyorkfed.org/research/economists/Morelli

No 20260819, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Stock market participation in the U.S. has changed dramatically over the past four decades. In the mid-1980s, fewer than 30 percent of households held equity. By the early 2000s, more than half of U.S. households owned equity, either directly or through mutual funds, 401(k)s, and IRAs. As participation widened, the way stock market fluctuations passed through to household spending may have changed, with potential implications for how the broader economy behaves. An argument can be made that the rise in equity market participation has dampened the response of output to interest rate changes as stock market fluctuations are now spread across a larger share of households, moderating movements in consumer spending, asset prices, and investment spending.

Keywords: Limited Participation; monetary policy; stock market; investment; business cycle (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 G51 (search for similar items in EconPapers)
Date: 2026-08-19
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DOI: 10.59576/lse.20260819

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