Asset market values react to economic news and policychanges, and consumers react to changes in asset marketvalues. The consumption-wealth channel of monetary policyspells out this mechanism: changes in monetary policy affectasset values, which in turn affect consumer spending onnondurable goods...

Aggregate stock prices, relative to virtually any indicator of fundamental value, soared to unprecedented levels in the 1990s. Even today, after the market declines since 2000, they remain well above historical norms, why?

We investigate a consumption-based present value relation that is a function of future dividend growth. Using data on aggregate consumption and measures of the dividend payments from aggregate wealth, we show that changing forecasts of dividend growth are an important feature of the post-war...