Quote Originally Posted by GRG55 View Post
Not sure if your definition of "wealth effect" is inclusive of this, but increasing asset prices allow the collateralizing of increasing credit (for example, re-financing mortgages which frees up cash and credit to buy more property).
It is an important question how asset price growth stimulates the economy. It certainly does, based on the relationship between boom bust cycles, observed
in 1929, 2008, etc. I agree it is not obvious how. During the housing boom, the assumption of perpetually rising prices made people willing to increase credit and spending. I think it might have been similar in 2000 and 1920s: the rising asset prices made debt increase possible, as GRG says.
I