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The Decline in Household Saving and the Wealth Effect

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Author Info
F. Thomas Juster (University of Michigan, Board of Governors of the Federal Reserve System, RAND)
Joseph P. Lupton (University of Michigan, Board of Governors of the Federal Reserve System, RAND)
James P. Smith (University of Michigan, Board of Governors of the Federal Reserve System, RAND)
Frank Stafford (University of Michigan)

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Abstract

Using a unique set of household-level panel data, we estimate the effect of capital gains on saving by asset type, controlling for observable and unobservable household-specific fixed effects. The results suggest that the decline in the personal saving rate since 1984 is largely due to the significant capital gains in corporate equities experienced over this period. Over 5-year periods, the effect of capital gains in corporate equities on saving is substantially larger than the effect of capital gains in housing or other assets. Failure to differentiate wealth effects across asset types results in a significant understatement of their size. Copyright (c) 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.2006.88.1.20
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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 1 (January)
Pages: 20-27
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Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:20-27

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References listed on IDEAS
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  1. Hugo Benítez-Silva & Selcuk Eren & Frank Heiland & Sergi Jiménez-Martín, 2008. "How Well do Individuals Predict the Selling Prices of their Homes?," Economics Working Papers 1065, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008. [Downloadable!]
    Other versions:
  2. repec:bep:mactop:v:7:y:2007:i:1:p:1472-1472 is not listed on IDEAS
  3. Salotti, Simone, 2009. "Wealth effect in the US: evidence from brand new micro-data," MPRA Paper 17732, University Library of Munich, Germany. [Downloadable!]
  4. Wojciech Kopczuk & Joseph Lupton, 2005. "To Leave or Not To Leave: The Distribution of Bequest Motives," NBER Working Papers 11767, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Jonathan McCarthy & Charles Steindel, 2006. "Housing activity, home values, and consumer spending," Proceedings, Federal Reserve Bank of Chicago, pages 78-89. [Downloadable!]
  7. Jeffrey R. Brown & Scott J. Weisbenner, 2002. "Is a Bird in Hand Worth More than a Bird in the Bush? Intergenerational Transfers and Savings Behavior," NBER Working Papers 8753, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009. [Downloadable!]
  9. Gabor Kezdi & Purvi Sevak, 2004. "Economic Adjustment of Recent Retirees to Adverse Wealth Shocks," Working Papers wp075, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  10. Alan Greenspan & James Kennedy, 2007. "Sources and uses of equity extracted from homes," Finance and Economics Discussion Series 2007-20, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  11. Robert Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2006. "Households' Response to Wealth Changes: Do Gains or Losses make a Difference?," DNB Working Papers 090, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  12. Bilias, Yannis & Georgarakos, Dimitris & Haliassos, Michalis, 2009. "Portfolio Inertia and Stock Market Fluctuations," CEPR Discussion Papers 7239, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Paul Hiebert, 2006. "Household Saving and Asset Valuations in Selected Industrialised Countries," RBA Research Discussion Papers rdp2006-07, Reserve Bank of Australia. [Downloadable!]
  14. Thomas Juster & Honggao Cao & Mick Couper & Daniel Hill & Michael Hurd & Joseph Lupton & Michael Perry & James Smith, 2007. "Enhancing the Quality of Data on the Measurement of Income and Wealth," Working Papers wp151, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  15. M. van Duijn & M. Lindeboom & P. Lundborg & M. Mastrogiacomo, 2009. "Pension Plans and the Retirement Replacement Rates in the Netherlands," CPB Discussion Papers 118, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  16. Julia Lynn Coronado & Maria Perozek, 2003. "Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s," Finance and Economics Discussion Series 2003-20, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Michael R. Donihue & Andriy Avramenko, 2006. "Decomposing consumer wealth effects: evidence on the role of real estate assets following the wealth cycle of 1990-2002," Working Papers 06-15, Federal Reserve Bank of Boston. [Downloadable!]
  18. F. Thomas Juster & Joseph P. Lupton & Honggao Cao, 2002. "Ensuring Time-Series Consistency in Estimates of Income and Wealth," Working Papers wp030, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  19. Olympia Bover, 2005. "Wealth effects on consumption: microeconometric estimates from the Spanish survey of household finances," Banco de España Working Papers 0522, Banco de España. [Downloadable!]
  20. James Banks & Richard Blundell & James P. Smith, 2004. "Understanding Differences in Household Financial Wealth between the United States and Great Britain," Labor and Demography 0403028, EconWPA. [Downloadable!]
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  21. Bover, Olympia, 2006. "Wealth Effects on Consumption: Microeconometric Estimates from a New Survey of Household Finances," CEPR Discussion Papers 5874, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  23. Tatom, John, 2008. "The U.S. foreclosure crisis: a two-pronged assault on the U.S. economy," MPRA Paper 9787, University Library of Munich, Germany. [Downloadable!]
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