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Can households and companies distinguish between “real” and “fake” wealth?
When households’ wealth increases, they normally save less; when companies’ market value increases, they normally invest more (this is “Tobin’s q”). But there are two forms of wealth increase: “Real” wealth increase, related to growth, technological progress, etc. “Fake” wealth increase, related simply to expansionary monetary policies. If households and companies can distinguish between “real” and “fake” wealth, then when an increase in wealth results only from expansionary monetary policies, there should be no fall in the household savings rate or increase in corporate investment. We find that “fake wealth” triggered normal wealth effects from 1998 to 2000 and from 2003 to 2008, but no longer from 2014 to 2019. This implies that the wealth channel of monetary policy has disappeared.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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