Market report: Rising stock wealth does boost spending, employment

The stock market is a staple of business news, but it is unclear how meaningful stock prices are to the larger economy.

on a county-by-county basis, the study finds that after large market shifts, people spend about 3.2 cents per year out of each increased dollar of stock wealth they possess.

“We found that the empirical effect is clear,” says Alp Simsek, an associate professor of economics at MIT and a co-author of a new paper detailing the study’s results.

Nenov, an associate professor at the Norwegian Business School in Oslo; and Simsek, the Rudi Dornbusch Career Development Associate Professor in MIT’s Department of Economics.

“There are counties like Palm Beach and Miami that have very high stock wealth, and others, like those in the Florida panhandle, that do not.

Simsek, Chodorow-Reich, and Nenov also found this change almost entirely in nontradable industries, where location matters.

Federal Reserve — a sustained 20 percent increase in stock valuations increases the nationwide labor bill by around 1.7 percent and increases nationwide hours worked by around 0.7 percent within two years.

Perhaps it takes time for people to realize their wealth has changed or for their consumption habits to adjust.

“One of the things the Fed can do, if they want to stimulate economic activity, is cut the rate and increase stock wealth, and that will support economic activity,” Simsek says.

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