On the stability of the wealth effect

• Author(s): Alexandre, Fernando ; Bação, Pedro ; Gabriel, Vasco J.
• Date: 2005
• Persistent ID: http://hdl.handle.net/1822/3845
• Origin: RepositóriUM - Universidade do Minho
• Subject(s): Parameter instability; Markov switching; Consumption; Wealth effect
• Document Type: Research paper
• Language: English

Description

Evidence of instability of the wealth effect in the USA is presented through the estimation of a Markov switching model of the long-run aggregate consumption function. The dating of the regimes appears to bear relation to ovements in asset prices. A model-based explanation of the findings is suggested, highlighting the importance of the short-run relation between consumption, income and wealth in explaining the estimated long-run coefficients.