However, when the stock markets crashed in April 2000 (wiping out $2.1 trillion in nominal investor wealth) U.S. household consumption did not drop substantially.
Pigou's reasoning for a positive wealth elasticity was that richer people feel more secure in the future and hence save less from current income.
The elasticity has important implications for monetary policy: Investments with a fixed yield (such as a bond paying coupons at 5%) will increase in net present value as interest rates fall.
Working the other way, central banks often need to guess the wealth elasticity for asset price changes that have already happened in order to adjust the interest rate.
However, some patterns are widely believed to hold: If 'leisure time' is a superior good the income effect will partially cancel itself out, since people will work less as their hourly pay goes up.