| Publisher | Federal Reserve Board | ||
|---|---|---|---|
| Format | 196.9KB PDF | Date added | 01 May 2001 |
| Topics | Performance Budgeting and Management, Financial Management | ||
| Downloads | 51 | ||
This paper explores the household behavior that underlies the link between wealth and consumption at the aggregate level. One possibility is that changes in wealth directly cause changes in consumption through their effect on households' contemporaneous budget sets; another possibility is that they merely predict changes in consumption because they signal changes in future income. Previous attempts to assess the relative importance of these "direct" and "indirect" channels have yielded indeterminate results. Based on analysis of household-level data from the Consumer Expenditure Survey, this paper finds that direct wealth effects begin to show up relatively quickly and continue to boost consumption growth for a number of quarters, in line with aggregate estimates.
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