Volatility in asset prices and long-run wealth effect estimates

• Autor(es): Alexandre, Fernando ; Bação, Pedro ; Gabriel, Vasco J.
• Data: 2007
• Identificador Persistente: http://hdl.handle.net/1822/7626
• Origem: RepositóriUM - Universidade do Minho
• Assunto(s): Parameter instability; Markov switching; Consumption; Wealth effect
• Tipo de Documento: Preprint
• Idioma: Inglês

Descrição

Prova tipográfica (In Press) We argue that the equation commonly used in the estimation of the wealth effect on consumption might be unsuitable for that purpose. In particular, if the usual assumptions are employed, the derivation of the equation implies that the wealth effect is indeterminate. Furthermore, it implies that the estimate of the wealth effect should decrease when asset wealth volatility increases. Estimation of a Markov-switching model of the usual long-run aggregate consumption equation provides evidence favourable to the indeterminacy hypothesis.