Re-examining the impact of housing wealth and stock wealth on retail sales: Does persistence in wealth changes matter?

Case, Quigley and Shiller (2005, 2013) quantified stock versus housing wealth effects on quarterly state-level retail sales, which they interpret as an approximate measure of household consumption spending. We investigate the variation of these wealth effects with the persistence of each kind of wealth fluctuation in an estimated linear dynamic fixed-effects model, allowing for both cointegration and endogeneity. Retail sales respond most strongly to housing wealth fluctuations which persist for one to four years, whereas the response to stock wealth fluctuations is smaller and is concentrated on fluctuations with a persistence of either less than a year or more than four years. These differential persistence effects point to a need for a richer theoretical formulation in this area.