The Economic Perspective: “New Estimates of the Wealth Effect”

I’m Mary Walden, with economist MW, welcoming you to the economic perspective.  Today’s program looks at new estimates of the wealth effect.  Mike, the ups and downs of the stock market are avidly watched by many, particularly those who have money invested in the market.  But are there broader impacts of stock market fluctuations?

  • Yes, called wealth effect
  • Market up – investors wealthier – will spend more
  • Market down – investors poorer – will spend less
  • So stock market can have big impact on consumer spending, which drives 70% of the economy
  • Have new estimates of the wealth effect – show consumer spending rises and falls by 3 cents per dollar change in stock market wealth
  • This is a big deal, since overall economy grows by 2% to 3% per year
  • I’m MW

And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.