It ("wealth") is not fictitious when you draw on it.
It's only imaginary taken as a whole at a given point in time,
since the totality of claims to real goods and services could
not be honored instantaneously. There is no equivalent hoard
of real things backing the entirety of paper.
As for regressions, invariably you can 'explain' something with
different models.
(Look Ma, I'm running Ubuntu.)
On Wed, 2009-01-14 at 21:11 -0500, Doug Henwood wrote:
>
> I've had this argument with Dean, who's big on the wealth effect. I'm
> not sure how the stock of (largely fictitious) wealth affects the
> flows of consumption. Mortgage borrowing and spending capital gains
> can affect consumption, but not balance sheet wealth that's mostly
> money of the mind (in Jim Grant's excellent phrase). Yes, consumption
> in the recent boom ran well ahead of income, but that was enabled by
> mortgage equity withdrawal - people can't spend cash flow they don't
> have. My own half-assed regressions show that income growth and lagged
> consumption can explain almost all the variation in consumption (r2 = .
> 87). Adding mortgage debt growth raises the r2 some, but housing adds
> much less power. I've read some of the wealth effect lit and they
> don't mention mortgage debt - only housing wealth.
>
> Doug
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