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THE STOCK MARKET, HOUSING AND CONSUMER SPENDING: A SURVEY OF THE EVIDENCE ON WEALTH EFFECTS
Author(s) -
Paiella Monica
Publication year - 2009
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2009.00595.x
Subject(s) - economics , consumer spending , wealth effect , stock (firearms) , collateral , consumption (sociology) , shock (circulatory) , stock market , cointegration , short run , monetary economics , macroeconomics , econometrics , monetary policy , finance , mechanical engineering , medicine , social science , paleontology , horse , recession , sociology , biology , engineering
This paper examines the time‐series and micro‐econometric evidence on the relationship between stock and house prices and consumer spending. The time‐series studies distinguish between short‐run and long‐run links between consumption, income and wealth. They allow us to identify which variables adjust to restore the long‐run equilibrium in the case of a shock, and to determine the time taken by the adjustment process. The micro‐econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses – of direct wealth effect, common causality and collateral channel – that have been proposed to explain this relationship. The relationship between wealth and consumer spending appears to be strong, but there is some disagreement as to its size and nature. Furthermore, there appear to be some important differences across countries, which should be allowed for by policy makers when appraising the policy implications of a change in asset prices.