WEALTH, DISPOSABLE INCOME AND CONSUMPTION - Economics

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48 functions further, by augmenting a standard EC consumption model with wealth, this analysis succeeds both in placing empirical consumption models for Canada on a firmer theoretical foundation and in improving our ability to explain observed consumption behaviour. On a broader level, the usefulness of wealth explaining consumption suggests that the measures of wealth developed in this report may be useful in other applications. These include the impact of public policy on consumption and saving, and the effect of fluctuations in asset prices on aggregate demand and inflation. The evidence that aggregate consumption and saving respond differently to different components of non-human wealth also suggests that distributional issues deserve more attention. In principle, heterogeneity in consumer portfolios could be addressed by disaggregating consumers into various groups, but this approach is hampered by the lack of adequate data. An alternative is to disaggregate non-human wealth into its principal components and examine the sensitivity of these individual components to aggregate consumption. Evidence that consumption is influenced by the composition of wealth may also indicate that adjustment costs associated with portfolio allocation differ across assets. In the absence of separation between the portfolio-choice and consumption-savings problems, an integrated approach to modelling wealth allocation and consumption behaviour is appropriate. These and other extensions, however, are left for future work.
APPENDIX 1: The data This appendix describes the construction of all the variables in this study. The raw data series are all drawn principally from CANSIM, but some series are from the RDXF and QPM data bases at the Bank of Canada. Reference numbers for CANSIM data are provided. To the extent possible, seasonally adjusted data were used, and in cases where the data were unadjusted, seasonal adjustment was performed using ARIMA X-11, if a stable seasonal pattern was found to exist (these variables are suffixed with SA). L = real per capita labour income = (LBINC/(PGDP*NPOP*4)) LBINC = labour income in millions of current dollars = (YW+(YW/(YGDP–YENAR)))*(YFA+YNFNC) YW = labour income excluding military pay (wages, salaries and supplementary labour income in millions of current dollars). D20088–D20091 YGDP = gross domestic product in millions of current dollars. D20011 YENAR = residual error. D20029 YFA = farm income. D20005 YNFNC = unincorporated business income. D20006 PGDP = GDP price deflator. D20011/D20463 NPOP = non-institutional population (15 years and over); quarterly average of the monthly series D767284/1000 r = real interest rate = RR90+2.3/400 RR90 = R90/400–EINF 47
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November 1994 WEALTH, DISPOSABLE IN
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CONTENTS ACKNOWLEDGMENTS ..........
Page 7 and 8: ABSTRACT The author develops a meas
Page 9 and 10: 1 INTRODUCTION Empirical research o
Page 11 and 12: impact of fluctuations in the price
Page 13 and 14: 2 MEASURING WEALTH In a competitive
Page 15 and 16: ∞ 1 + xt + j Ht = Xt 1 + E ⎛ t
Page 17 and 18: 2.3 percentage points) between the
Page 19 and 20: The time-series properties of net i
Page 21 and 22: expectation operator. Instead, the
Page 23 and 24: Table 3 Cumulative growth factors u
Page 25 and 26: 180 000 160 000 140 000 120 000 100
Page 27 and 28: non-residential structures, machine
Page 29 and 30: 80 000 70 000 60 000 50 000 40 000
Page 31 and 32: 3 IS WEALTH USEFUL IN EXPLAINING CO
Page 33 and 34: contrast, appears to be trend-stati
Page 35 and 36: First, there is little evidence tha
Page 37 and 38: Both estimators correct for the end
Page 39 and 40: cointegrating parameters reported i
Page 41 and 42: consumption, disposable income and
Page 43 and 44: Table 8 Error-correction models for
Page 46 and 47: 38 0.5 0.0 -0.5 -1.0 0.8 0.6 0.4 0.
Page 48 and 49: 40 conventional levels. Presumably
Page 50 and 51: 42 0.5 0.0 -0.5 -1.0 0.6 0.4 0.2 0.
Page 53 and 54: 15 000 14 000 13 000 12 000 11 000
Page 55: 4 CONCLUSION The wealth measure dev
Page 59 and 60: TAX = taxes net of transfers = (NET
Page 61 and 62: = FINAQ_CD+FINAQ_CC+FINAQ_OBDS + FI
Page 63 and 64: CPPQ = Canada Pension Plan. D162590
Page 65 and 66: RAC = average coupon rate = RAC(t-1
Page 67 and 68: APPENDIX 2: Closed-form solution fo
Page 69 and 70: APPENDIX 3: Wealth and its componen
Page 71: 87:2 356297.31 295864.21 60433.10 3
Page 74 and 75: 64 Flavin, M. A. 1981. “The Adjus
Page 76 and 77: 66 Perron, P. 1991. “Test Consist
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