Credit, money and consumption: time-series evidence for Italy

Attanasio, Orazio; Weber, Guglielmo; Conti, Vittorio; Hamaui, Rony

doi:10.1017/cbo9780511599156.004

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“…In the CEX the more theoretically appropriate approach is used of first converting the household data to logarithms, then differencing for households present in both t and t + 1, then averaging. 36 Correct aggregation can make a significant difference in estimating the response of expected consumption growth to time variation in risk-free real interest rates, 37 suggesting that correct aggregation may matter for the present set of results.…”

Section: The Risk Of Stocks For Rich Households Older Households and All Cex Householdsmentioning

confidence: 95%

The Consumption Risk of the Stock Market

Parker¹

2001

eca

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OVER THE PAST century in the United States, the average annual return on the stock market has exceeded that on short-term government bonds by 6 percentage points. The natural economic explanation for the premium on equity is the greater risks associated with investing in the stock market. However, the large premium that we observe cannot be explained by the canonical, consumption-based asset pricing model. Risk is best measured as the extent to which a return alters marginal utility. Since marginal utility is closely related to consumption, and consumption moves little with returns, the measured risk of the stock market is small. 1 One common informal interpretation of this equity premium puzzle is that stocks are a good deal. In this view, the model is taken as a reasonably accurate description of optimal behavior and a poor description of actual behavior. This normative view of the model and the data implies that households should increase their holdings of equity and even borrow to invest in the stock market. 2 Such thinking has also entered important areas 279

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Section: The Risk Of Stocks For Rich Households Older Households and All Cex Householdsmentioning

confidence: 95%

The Consumption Risk of the Stock Market

Parker¹

2001

eca

View full text Add to dashboard Cite

show abstract

Credit, money and consumption: time-series evidence for Italy

Cited by 1 publication

References 0 publications

The Consumption Risk of the Stock Market

The Consumption Risk of the Stock Market

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