The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Wealth Effects and the Consumption of Leisure: Retirement Decisions During the Stock Market Boom of the 1990s
Julia L. Coronado and Maria Perozek

Abstract: It is well accepted that households increase consumption of goods and services in response to an unexpected increase in wealth. Consensus estimates of this wealth effect are in the range of 3 to 5 cents of additional consumption spending in the long run for each additional dollar of wealth. Economic theory also suggests that consumption of leisure, like consumption of goods and services, should increase with positive shocks to wealth. In this paper, we ask whether the run-up in equity prices during the 1990s led older workers to retire earlier than they had previously planned. We identify the effect by exploiting unique data on retirement expectations from the Health and Retirement Survey. Our econometric results suggest that respondents who held corporate equity immediately prior to the bull market of the 1990s retired, on average, 7 months earlier than other respondents.

Keywords: Wealth effect, retirement

Full paper (226 KB PDF)

Home | FEDS | List of 2003 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: June 4, 2003