The Stock Market, Housing and Consumer Spending: A Survey of the Evidence on Wealth Effects

27 Pages Posted: 9 Nov 2009

See all articles by Monica Paiella

Monica Paiella

University of Naples Federico II

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This paper examines the time-series and micro-econometric evidence on the relationship between stock and house prices and consumer spending. The time-series studies distinguish between short-run and long-run links between consumption, income and wealth. They allow us to identify which variables adjust to restore the long-run equilibrium in the case of a shock, and to determine the time taken by the adjustment process. The micro-econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses – of direct wealth effect, common causality and collateral channel – that have been proposed to explain this relationship. The relationship between wealth and consumer spending appears to be strong, but there is some disagreement as to its size and nature. Furthermore, there appear to be some important differences across countries, which should be allowed for by policy makers when appraising the policy implications of a change in asset prices.

Suggested Citation

Paiella, Monica, The Stock Market, Housing and Consumer Spending: A Survey of the Evidence on Wealth Effects. Journal of Economic Surveys, Vol. 23, Issue 5, pp. 947-973, December 2009, Available at SSRN: or

Monica Paiella (Contact Author)

University of Naples Federico II ( email )

Via Amm. F. Acton, 38
80133 Naples, Caserta 80133

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