A note on the potential pitfalls in estimating a ‘wealth effect’ on consumption from aggregate data

This paper illustrates, by means of a simple equilibrium example, the problems in estimating a ‘wealth effect’ on consumption using only aggregate data on consumption and wealth. While the example echoes criticisms that date back to early work by the Cowles Commission, a spate of recent papers on this topic suggest that the lessons from that earlier literature have not been learned