Financial wealth effect: evidence from threshold estimation

Abstract

Using Hansen's (1999) threshold estimation technique and Panel Study of Income Dynamics (PSID) data set for the waves of 2001, 2003 and 2005, we estimate the effects of the fluctuations in financial wealth on the consumption behaviour of households for different endogenously determined income groups. We found a threshold income level of almost $130 000, below which the financial wealth effect is insignificant, and above which the effect is 0.004.

Acknowledgements

We thank Christopher Carroll. Remaining errors are our own.

Notes

¹Three hundred bootstrap replications are used for each of the three bootstrap tests.