Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5056104 | Economic Modelling | 2007 | 17 Pages |
Abstract
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.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Fernando Alexandre, Pedro Bação, Vasco J. Gabriel,