By Steve Roth
Wealth Economics
This post is prompted by Matthew Klein’s (very wonky) post about recent changes in QE/QT, and the Fed’s balance sheet. It prompted me to do a quick calculation that I’ve been meaning to get to: when household wealth increases (due to stock-market price runups or really anything else), what effect does that have on household spending in the next year?
I’m going to start with a bald two-part claim.
A. The overwhelming effect/mechanism/transmission-channel for QE/QT is via equity prices. QE gooses share prices. It “fills up the punchbowl.” QT takes it away, or at least restrains those runups.
B. There’s a resulting (weak) “wealth effect.” If people have more money/assets/wealth, they spend more.
The
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