WEALTH EFFECTS AND MACROECONOMIC DYNAMICS

Daniel H Cooper · Karen E. Dynan

88 citations0/0 files storedJournal of Economic Surveys

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Monetary Policy and Economic Impact Financial Literacy, Pension, Retirement Analysis Economic Theory and Policy

Abstract

Abstract The effect of wealth on consumption is an issue of long‐standing interest to economists. Conventional wisdom suggests that fluctuations in household wealth have driven major swings in economic activity both in the United States and abroad. This paper considers the so‐called consumption wealth effects. There is an extensive existing literature on wealth effects that has yielded some insights. For example, research has documented the relationship between aggregate household wealth and aggregate consumption over time, and a large number of household‐level studies suggest that wealth effects are larger for households facing credit constraints. However, there are also many unresolved issues regarding the influence of household wealth on consumption. We review the most important of these issues and argue that there is a need for much more research in these areas as well as better data sources for conducting such analysis.

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References

1957Theory of the Consumption Function 1963THE LIFE CYCLE HYPOTHESIS OF SAVING: AGGREGATE IMPLICATIONS AND TESTS 2013Household Balance Sheets, Consumption, and the Economic Slump*2012Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach*2011House Prices, Home Equity–Based Borrowing, and the US Household Leverage Crisis 1958A Theory of the Consumption Function 2005Comparing Wealth Effects: The Stock Market versus the Housing Market 2006How do house prices affect consumption? Evidence from micro data

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