Household Wealth Data and Public Policy
Some thoughts from Macroeconomics
José-Vı́ctor Rı́os Rull
UCL, UMN, Mpls Fed, CAERP
November 2, 2015
Macroeconomics
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Macro models want to determine Consumption, Investment
and Hours worked.
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The standard model is a representative agent model that uses
aggregate capital/wealth as the main state variable that
affects decisions.
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This is fine if behavior is linear or almost.
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Indeed, the first generation of models of models satisfied
almost aggregation.
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Distribution does not matter. Macro did not care about
distribution.
But .....
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The crisis came. With a huge drop of consumption and
housing prices.
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There is an enormous suspicious that this has to do with
household access to credit to buy houses.
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But with wealth to income ratios of 5-7 in representative
agent models credit to households cannot matter.
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So the distribution of wealth is into macro again.
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How else can we think of financial stability?
Where does the distribution matters for the whole
economy?
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Retirement, and in general willingness to work.
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Leverage in home ownership make households very vulnerable
to price changes and hence wealth effects are more important.
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Interaction of wealth holdings and their portfolio and the
financial system.
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This goes both ways not only from the financial system to
household behavior but also the other way around.
Is it enough just to know what is owned by whom?
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Not really. We want to know more about the details of the
contracts that people engage in:
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The nature of the mortgage contracts (liquidation costs,
guarantees, future payment obligations, extent of
securitization). Wealthy people also have a lot of debt.
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The nature of insurance arrangements and family properties.
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We also want to know how private transfers work. There is a
big industry in macroeconomics worrying about insurance
motives for savings. We need to know the extent of income
insurance arrangements.
Aggregation to National Accounts
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We need to have different but reliable sources of data on asset
holdings.
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Consistency does not mean equal amounts.
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Many countries have had large trade deficits/surplus
continually.
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They have to show up in differences between assets in a
country and assets held by its citizens or residents.
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We want a double check on Flow of Funds type data to get
accurate measurements of the wealth held by locals.
Conclusions
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Wealth dispersion is a Macroeconomic concern at least since
the Great Recession.
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External imbalances make the effort to have a data source
independent of the Flow of Funds type data more crucial.
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We need better data that includes the right tail of wealth.