Social and Behavioral Sciences Commons^™

Asymmetric Wealth Effect : American Consumption And The Stock Market, Jonathan Greene

Honors Theses

Conventional estimates of the marginal propensity to consume (MPC) out of changes in net worth average about 4 cents on the dollar. If this is true, the $14 trillion rise in household net worth between 1995 and 2000 created an additional $567 billion in household consumption. This increase in net worth was driven almost entirely by the rising values of security prices in the contemporary bull market. This study presents evidence that this "wealth effect" is in fact asymmetrical and that this asymmetry reversed some time during the 1970's or 1980's. Prior to this reversal point positive changes in slock …