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Decomposing consumer wealth effects: evidence on the role of real estate assets following the wealth cycle of 1990-2002
During the period from 1990 to 2002, U.S. households experienced a dramatic wealth cycle, induced by a 369-percent appreciation in the value of real per capita liquid stock-market assets, followed by a 55-percent decline. However, despite predictions at the time by some analysts relying on life-cycle models of consumption, consumer spending in real terms continued to rise throughout this period. Using data from 1990 to 2005, traditional approaches to estimating macroeconomic wealth effects on consumption confront two puzzles: (i) econometric evidence of a stable cointegrating relationship ...