Wealth Effects and Macroeconomic Dynamics

22 Pages Posted: 6 Jan 2016

See all articles by Daniel Cooper

Daniel Cooper

Federal Reserve Bank of Boston

Karen E. Dynan

Harvard University; Peterson Institute for International Economics

Date Written: February 2016

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.

Keywords: Borrowing constraints, Consumption, Deleveraging, Financial wealth, Household debt, Housing wealth, Saving, Wealth effects

Suggested Citation

Cooper, Daniel H. and Dynan, Karen E., Wealth Effects and Macroeconomic Dynamics (February 2016). Journal of Economic Surveys, Vol. 30, Issue 1, pp. 34-55, 2016, Available at SSRN: https://ssrn.com/abstract=2711517 or http://dx.doi.org/10.1111/joes.12090

Daniel H. Cooper (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-4220 (Phone)

Karen E. Dynan

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://https://piie.com/experts/senior-research-staff/karen-dynan

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