The stock market is a staple of business news, but it is unclear how meaningful stock prices are to the larger economy. Do changes in stock prices directly affect shorter-term consumption, or are they just leading indicators for subsequent economic activity? The U.S. Federal Reserve, for its part, usually seems to act as if stock-based wealth does help drive spending and employment. But is this correct? A new study co-authored by an MIT economist brings data to the discussion and finds that increased stock market wealth has moderate but clear…
