Stock Market Wealth and the Real Economy: A Local Labor Market Approach

Alp ÅžimÅŸek, Gabriel Chodorow-Reich and Plamen T. Nenov

No 13856, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide evidence of the stock market wealth effect on consumption by using a local labor market analysis and regional heterogeneity in stock market wealth. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, while having no effect on employment in tradable industries. In a model with consumption wealth effects and geographic heterogeneity, these responses imply a marginal propensity to consume out of a dollar of stock wealth of 3.2 cents per year. We also use the model to quantify the aggregate effects of a stock market wealth shock when monetary policy is passive. A 20% increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7% and aggregate hours by at least 0.75% two years after the shock.

Keywords: Stock prices; Consumption wealth effect; Marginal propensity to consume; Employment; Wages; Regional heterogeneity; Time-varying risk premium; Nominal rigidities; Monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-lma, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Related works:
Journal Article: Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2021)
Working Paper: Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2019)
Working Paper: Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2019)
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