Stock Market Wealth and Consumer Spending

22 Pages Posted: 19 Sep 1998

See all articles by Martha Starr

Martha Starr

American University - Department of Economics

Date Written: April 30, 1998

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.

JEL Classification: E21, D12, D31

Suggested Citation

Starr, Martha, Stock Market Wealth and Consumer Spending (April 30, 1998). Available at SSRN: https://ssrn.com/abstract=91068 or http://dx.doi.org/10.2139/ssrn.91068

Martha Starr (Contact Author)

American University - Department of Economics ( email )

4400 Massachusetts Avenue, N.W.
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United States
202-885-3747 (Phone)

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