Equity wealth effects: fundamental or bubble-driven?

Abstract

This article estimates equity wealth effects on euro area consumption, splitting equity returns into fundamental- and bubble-related components. The equity wealth effect is fundamental-driven, particularly strong since 1994, and operates comparatively quickly during negative bubble returns.

Acknowledgement

The usual disclaimer applies. I thank Julian Morgan for his comments.

Notes

¹The estimates confirm excess sensitivity of consumption to current income, whereas habit persistence is not always statistically significant. They are not reported to save space.