Wealth Effects and Macroeconomic Dynamics

This study analyses the macroeconomic dynamics of wealth effects in India and examines the nexus between the changes in housing wealth, financial wealth, and consumer spending. I find a statistically significant and large effect of housing wealth on household consumption. The results show that (i) wealth effects are statistically significant and comparatively substantial in magnitude (ii) housing wealth effects tend to be greater while stock market wealth effects are considerable (iii) private consumption responses to the shocks to housing market wealth are relatively stronger than to the shocks in stock market wealth. There is a bidirectional causality running from private consumption to the two wealth forms and vice versa. Overall, the private consumption expenditure response to the changes in different wealth forms is observed to be substantial and significant.