Wealth and Asset Price Effects on Economic Activity

66 Pages Posted: 18 Nov 2005

See all articles by Filippo Altissimo

Filippo Altissimo

Brevan Howard Asset Management LLP

Evaggelia Georgiou

Bank of Greece

Teresa Sastre

Banco de España

Maria Teresa Valderrama

Austrian National Bank

Gabriel Sterne

Bank of England

Marc Stocker

European Central Bank (ECB)

Mark Andreas Weth

Deutsche Bundesbank - Economics Department

Karl Whelan

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Alpo Willman

University of Kent - Canterbury Campus

Date Written: June 2005

Abstract

Do asset prices affect real activity? This question has taken on a new importance in recent years, as asset values first surged at the end of 1990s and, thereafter, dramatically retreated. This report reviews the available theoretical and empirical evidence regarding asset price and wealth effects in Europe and some other major economies. The main focus of this report is on consumption effects via the wealth channel, reflecting the bulk of literature on the effects of asset prices. However, asset price effects on investment via the Tobin's-Q channel, balance sheet and confidence channels are also reviewed. The available evidence supports the view that the wealth channel is the most important of various channels. There is little empirical evidence indicating that the Tobin's-Q, balance-sheet and confidence channels play any major independent role in the transmission of asset price effects to economic activity.

Keywords: household wealth, wealth channel, asset price, marginal propensity to consume, cost of capital

JEL Classification: D1, D3, D9, G11

Suggested Citation

Altissimo, Filippo and Georgiou, Evaggelia and Sastre, Teresa and Valderrama, Maria Teresa and Sterne, Gabriel and Stocker, Marc and Weth, Mark Andreas and Whelan, Karl and Willman, Alpo, Wealth and Asset Price Effects on Economic Activity (June 2005). ECB Occasional Paper No. 29. Available at SSRN: https://ssrn.com/abstract=752089

Filippo Altissimo (Contact Author)

Brevan Howard Asset Management LLP ( email )

2nd Floor Almack House
28 King Street
London, SW1Y 6XA
United Kingdom

Evaggelia Georgiou

Bank of Greece

21 E. Venizelos Avenue
GR-10250 Athens
Greece

Teresa Sastre

Banco de España ( email )

Madrid 28014
Spain

Maria Teresa Valderrama

Austrian National Bank ( email )

A-1011 Vienna, 1090
Austria

Gabriel Sterne

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Marc Stocker

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mark Andreas Weth

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany
+49 69 9566-4284 (Phone)
+49 69 9566-3082 (Fax)

Karl Whelan

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

Dame Street
P.O. Box 559
Dublin 2
Ireland

Alpo Willman

University of Kent - Canterbury Campus ( email )

Finland

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