Broader U.S. Equity Ownership Cuts Output Response to Rate Shocks by 20%, Fed Study Finds
Updated
Updated · Liberty Street Economics - · Aug 19
Broader U.S. Equity Ownership Cuts Output Response to Rate Shocks by 20%, Fed Study Finds
1 articles · Updated · Liberty Street Economics - · Aug 19
Summary
A calibrated model in the New York Fed research finds an unexpected rate increase produces an output decline about 20% smaller when equity participation rises to 55% from 25%.
Morelli argues wider stock ownership spreads market losses across more households, leaving each investor with smaller equity exposure and less leverage, which softens consumption cuts, stock-price declines and investment pullbacks.
U.S. household data from 1990 to 2007 show stockholders still cut nondurable spending more than nonstockholders after rate shocks, but that gap narrowed markedly from the mid-1990s to the mid-2000s as participation climbed.
Industrial production estimates using 20-year rolling windows also show output became less sensitive to surprise rate increases as participation broadened, with cross-state evidence pointing the same way.
The study says portfolio shifts are only one of several structural changes over the period, but concludes household asset ownership has become a meaningful channel shaping monetary-policy transmission.