Survey_Bertaut_2002

Abstract

Estimates for the United States resulting from this study are not intended to be the last word or best estimate of the specific size of the U.S. wealth effect, because the data and model specifications used in this study are not as complete or detailed as has been suggested to generate more precise U.S. estimates. Instead, the data used are generally comparable to those available for the other industrial countries, so that U.S. results can be compared with those generated for the other countries. Even with a relatively simple consumption model, however, the results for the U.S. are consistent with conventional estimates of additional spending for each dollar of additional stock market wealth. A second method to estimate the effect on consumption from changes in stock market wealth is to relate consumption growth to changes in equity prices in an estimated reduced-form equation. An advantage to this approach is that equity price data are available for a sufficiently long time series–from at least the late 1970s to the present–for most countries considered. However, using equity prices has several limitations: a price index proxy cannot capture changes over time in the size of the equity market or in its importance in aggregate household wealth. Moreover, not all equity wealth in a given country is invested in domestic securities, so that changes in the value of these securities may not be well approximated by changes to a single domestic equity price index. Additionally, this measure does not capture changes to other forms of household wealth that may have significant effects on consumption, most importantly, changes to property wealth. Finally, changes in stock prices may influence consumption by serving as a leading indicator of activity and income growth, rather than through a direct effect on household wealth. A third method for estimating consumption responses to developments in household wealth uses the aggregate household sector wealth data to estimate a long-run relationship between consumption, income, and wealth.20 However, this method can be used applied only to the subset of countries with a sufficiently long time series of quarterly wealth data. This study estimates this long-run relationship for the United States, Australia, Canada, France, Japan, and the United Kingdom. Several variants–models A through D–were estimated, as the specification of wealth used varies somewhat across countries according to data availability. In model A, the measure of wealth is total household sector wealth, an aggregate measure that includes both financial and non-financial wealth. This measure of wealth is the only measure that could be obtained for Australia, and for comparison purposes a version of Model A was also estimated for the United States, the United Kingdom, and Canada.