Structural Break or Asymmetry? An Empirical Study of the Stock Wealth Effect on Consumption (original) (raw)

Consumption Asymmetry and the Stock Market: Further Evidence

2004

Abstract This paper investigates the presence of asymmetric effects of stock returns on real consumption in the US. After identifying the asymmetric behavior for consumption as well as the wealth effect, the results confirm that stock returns have an asymmetric effect on real consumption, with negative'news' affecting consumption more than positive'news'.

Consumption asymmetry and the stock market: Empirical evidence

2006

This paper examines whether US stock-market value affects consumption asymmetrically. Using cointegration and error-correction methodology, the results confirm that stock-market value asymmetrically affects real per capita consumption. Negative “news” affects consumption more than positive “news.”

Consumption asymmetry and the stock market: new evidence through a threshold adjustment model

2005

Abstract This paper investigates whether stock market wealth affects real consumption asymmetrically through a threshold adjustment model. The empirical findings for the US show that wealth produces an asymmetric effect on real consumption, with negative'news' affecting consumption less than positive'news.'Thus, policy makers may want to focus more attention on preventing asset'bubbles' than on responding to negative asset shocks.

Stock Market Fluctuations and Consumption Behaviour: some sectoral estimates

1998

72560 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original formatECO/WKP(98)21 ABSTRACT/RÉSUMÉ This paper examines the likely influence of recent stock market fluctuations on major OECD economies, focusing on wealth effects and consumption. After reviewing the relevant theoretical framework and available empirical evidence, consumption functions are estimated for the US including the influence of financial wealth. The resulting estimates of the marginal propensity to consume out of financial wealth are extrapolated to other G7 countries, allowing for differences in stock market capitalisation, and compared with ones obtained more directly from consumption functions that include stock market prices as an explanatory variable. Simulations are then carried out to assess the potential world impact of a major fall in stock market prices in the G7 countries using a version of the OECD INTERLINK model which embodies the lat...

Aggregate consumption spending, the stock market and asymmetric error correction

Quantitative Finance, 2004

In this study, we show how changes in wealth resulting from unanticipated changes in the value of equity holdings begin a process whereby households alter consumption growth in order to close the gap between actual and target spending. Because of changing uncertainty or equity price volatility over the stock market cycle, we found the time path of this adjustment to exhibit near-random walk behaviour during stock market downturns. Conversely, during 'boom' periods, e.g. when the value of equities held by households was greater than the threshold, the growth in consumer spending was quick to eliminate the disparity between actual and target spending.

The Consumption-Wealth Ratio Under Asymmetric Adjustment

2007

This paper argues that nonlinear adjustment may provide a better explanation of fluctuations in the consumption-wealth ratio. The nonlinearity is captured by a Markov-switching vector error-correction model that allows the dynamics of the relationship to differ across regimes. Estimation of the system suggests that these states are related to the behaviour of financial markets. In fact, estimation of the system suggests that short-term deviations in the consumption-wealth ratio will forecast either asset returns or consumption growth: the first when changes in wealth are transitory; the second when changes in wealth are permanent. Our approach uncovers a richer and more complex dynamics in the consumption-wealth ratio than previous results in the literature, whilst being in accordance with theoretical predictions of standard models of consumption under uncertainty.

The Asymmetric Behavior of Household Consumption Under the Business Cycle

The North American Journal of Economics and Finance, 2019

In this study, we examine whether and to what extent the pattern of household consumption is asymmetrically sensitive to economic changes. We use a threshold model with error correction to characterize household consumption under the business cycle. Using data from the 1979-2014 Survey of Family Income and Expenditure in Taiwan, we find that household consumption has pro-cyclical characteristics during the business cycle. More importantly, household consumption responds asymmetrically to economic fluctuations such that changes in consumption tend to be larger during expansions than during downturns. Furthermore, the nature of this asymmetry differs across household income quantiles.

The long run relationship between private consumption and wealth: common and idiosyncratic effects

Portuguese Economic Journal, 2012

We investigate the long run relationship between private consumption, disposable income and wealth approximated by equity and house price indices for a panel of 15 industrialized countries. Consumption, income and wealth are cointegrated in their common components. The impact of house prices exceeds the effect arising from equity wealth. The long run vector is broadly in line with the life cycle permanent income hypothesis, if house prices are allowed to enter the relationship. At the idiosyncratic level, a long run equilibrium is detected between consumption and income, i.e. the wealth variable can be excluded. The income elasticity in the idiosyncratic relationship is significantly less than unity. Hence, the presence of wealth effects in consumption equations arises from the international integration of asset markets and points to the relevance of risk sharing activities of agents. Without sufficient opportunities, an increase in national saving rates would be expected, leading to a lower path of private consumption expenditures.

Consumption, Wealth, Stock and Government Bond Returns: International Evidence*

The Manchester School, 2011

In this paper, we show, from the consumer's budget constraint, that the residuals of the trend relationship among consumption, aggregate wealth, and labour income should predict both stock returns and government bond yields. We use data for several OECD countries and find that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding government bond yields, when bonds are seen as a component of asset wealth, then investors react in the same way. If, however, the increase in the yields is perceived as signalling a future rise in taxes, then they will temporarily reduce their consumption.