May

28

On the wealth-effect, I've been Googling for investigations on the effect as self-reinforcing feedback mechanism and I can't find anything of note. Most of the material I have come across refers to the wealth-effect as a two-step process (rising asset prices increase wealth that equals more spending).

However, as the Chair notes, a portion of this wealth-related spending will be on a variety of assets, whose prices then inflate to generate further wealth, and so the wealth-effect transforms from a two-stage process into a reinforcing cycle.


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