ROBERT SHILLER DEBUNKS THE STOCK MARKET “WEALTH EFFECT”

The evidence continues to mount against QE.  Mr. Bernanke didn’t see this crisis coming, he responded too late and now he continues to respond with the wrong medicine.  Nonetheless, markets trust his every last move. This debunking comes from noted economist Robert Shiller who says the “wealth effect” from the equity market is “weak” and “not supported in our results”:

“We have examined the wealth effect with a cross-sectional time-series data sets that are more comprehensive than any applied to the wealth effect before and with a number of different econometric specifications.  The statistical results are variable depending on econometric specification, and so any conclusion must be tentative.  Nevertheless, the evidence of a stock market wealth effect is weak; the common presumption that there is strong evidence for the wealth effect is not supported in our results. However, we do find strong evidence that variations in housing market wealth have important effects upon consumption.  This evidence arises consistently using panels of U.S. states and individual countries and is robust to differences in model specification. The housing market appears to be more important than the stock market in influencing consumption in developed countries.”


Source: Plan B economics (thanks to reader Oroboros)

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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