Wealth Shocks and Macroeconomic Dynamics

23 Pages Posted: 8 Sep 2013

See all articles by Daniel Cooper

Daniel Cooper

Federal Reserve Bank of Boston

Karen E. Dynan

Harvard University; Peterson Institute for International Economics

Date Written: August 31, 2013


The effect of wealth on consumption is an issue of longstanding interest to economists. Conventional wisdom suggests that fluctuations in household wealth have driven major swings in economic activity. This article considers so-called consumption wealth effects. There is an extensive existing literature on wealth effects that has yielded some insights. For example, research has documented the average historical relationship between aggregate household wealth and aggregate consumption, and a large number of household-level studies suggest that wealth effects are larger for households facing credit constraints. However, there are also many unresolved issues regarding the influence of household wealth on consumption. We review the most important of these issues and argue that there is a need for much more research in these areas as well as better data sources for conducting such analysis.

Keywords: Housing Wealth, Financial Wealth, Wealth Effects, Consumption, Borrowing Constraints, Saving, Household Debt, Deleveraging

JEL Classification: D1, E21, E44

Suggested Citation

Cooper, Daniel H. and Dynan, Karen E., Wealth Shocks and Macroeconomic Dynamics (August 31, 2013). Available at SSRN: https://ssrn.com/abstract=2321396 or http://dx.doi.org/10.2139/ssrn.2321396

Daniel H. Cooper (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-4220 (Phone)

Karen E. Dynan

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://https://piie.com/experts/senior-research-staff/karen-dynan

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