The Wealth-Consumption Ratio

110 Pages Posted: 9 Mar 2009 Last revised: 31 Mar 2013

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Adrien Verdelhan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: March 12, 2013

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.

JEL Classification: E21, G10, G12

Suggested Citation

Lustig, Hanno N. and Van Nieuwerburgh, Stijn and Verdelhan, Adrien, The Wealth-Consumption Ratio (March 12, 2013). NYU Working Paper No. FIN-08-045; Review of Asset Pricing Studies, Forthcoming; NYU Working Paper No. FIN-08-045; AFA 2008 New Orleans Meetings Paper ; EFA 2007 Ljubljana Meetings Paper . Available at SSRN: https://ssrn.com/abstract=1354532 or http://dx.doi.org/10.2139/ssrn.1354532

Hanno N. Lustig

Stanford Graduate School of Business ( email )

Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Stijn Van Nieuwerburgh (Contact Author)

New York University Stern School of Business, Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

Adrien Verdelhan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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