Resurrecting the Wealth Effect on Consumption: Further Analysis and Extension

This paper investigates whether various components of wealth affect real consumption asymmetrically through a threshold adjustment model. The empirical findings for the U.S. show that only stock market assets, financial assets including stock market assets, and household net assets exert a practical wealth effect on consumption expenditure. By contrast, financial assets excluding stock market assets, tangible assets, total assets, and the Lettau-Ludvigson measure of net assets do not exert a practical wealth effect on consumption expenditure. In addition, the empirical findings favor the presence of an asymmetric effect on real consumption for the former cases, with negative 'news' affecting consumption less than positive 'news'.