Working Paper No. 2023-27 - Why net worth is the wrong concept

The fit of the consumption equation actually improves by a whisker, though the change in the log likelihood is only 0.2 and the estimated coefficients are almost the same.14 Previously reported estimates above for a range of different models for the reduction in the consumption to income ratio following the Fornero reforms are reduced by around 7 percent. [...] Figure 12 shows the fitted contribution of the effective real interest rate on borrowing, the log ratio of permanent to current income, the log ratio of the moving average of the price index for durables relative to non-durables, the 1992-3 step dummy and the Fornero reform dummy. [...] These are the ratios to income of net liquid assets, semi-liquid assets, illiquid financial assets and the combined effect of the ratio to income of housing wealth and the negative offset of housing affrodability, measured by the log house price to income ratio. [...] Notes: The fitted contributions are for the ratios to income of net liquid assets, semi-liquid assets, illiquid financial assets and the combined effect of the ratio to income of housing wealth and the log house price to income ratio. [...] After the peak consumption to income ratio in early 2001, the ratio stabilised at a lower level with the fall in the ratio to income of semi- liquid assets triggered by the bursting of the dotcom stock market boom.