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The Wealth-Consumption RatioHanno N. LustigUCLA - Anderson School of Management; National Bureau of Economic Research (NBER) Stijn Van NieuwerburghNew York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) Adrien VerdelhanMassachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER) March 12, 2013 Review of Asset Pricing Studies, Forthcoming NYU Working Paper No. FIN-08-045 AFA 2008 New Orleans Meetings Paper EFA 2007 Ljubljana Meetings Paper Abstract: We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to aggregate consumption. We find that US households have a surprising amount of total wealth, most of it human wealth. This wealth is much less risky than stock market wealth. Events in long-term bond markets, not stock markets, drive most total wealth fluctuations. The wealth effect on consumption is small and varies over time with real interest rates.
Number of Pages in PDF File: 110 JEL Classification: E21, G10, G12 Accepted Paper SeriesDate posted: March 9, 2009 ; Last revised: March 31, 2013Suggested CitationContact Information
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