Working Paper

Stock market wealth and consumer spending

Abstract: This paper investigates the effects of stock market wealth on consumer spending. Traditional macroeconometric models estimate that a dollar's increase in stock market wealth boosts consumer spending by 3-7 cents per year. With the substantial 1990s rise in stock prices, the nature and magnitude of this \"wealth effect\" have been much debated. After describing the issues and reviewing previous research, I present new evidence from the SRC Surveys of Consumers. The survey results are broadly consistent with lifecycle saving and a modest wealth effect: Most stockholders reported no appreciable effect of stock prices on their saving or spending, but many mentioned \"retirement saving\" in explaining their behavior.

Keywords: Consumer behavior; Wealth; Stock market;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 1998

Number: 1998-20