Structural Break or Asymmetry? An Empirical Study of the Stock Wealth Effect on Consumption

Charles Leung, Nan-Kuang Chen () and Chih-Chiang Hsu

No 690, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: The purpose of this paper is to examine whether the stock wealth effect of consumption exhibits structural change(s) or behaves asymmetrically over business cycles. We first perform a general test of linearity for the behavior of aggregate consumption in response to changes in stock wealth based on Hamilton's (2001) approach. When a nonlinear relation is discovered, we move on to investigate the source(s) of this nonlinearity. We consider two types of nonlinearity: structural break and asymmetry. It is of interest to policy makers whether the sensitivity of consumption to changes in households' financial wealth shows a significant shift over time due to institutional and policy changes, and whether consumption is likely to decline more due to stock wealth shrinkage when the economy is in a downturn, as has been found in investme

Keywords: consumption; stock wealth; asymmetric effect; structural change (search for similar items in EconPapers)
JEL-codes: E21 E30 E44 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:690

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