Research Discussion Paper – RDP 25A Introducing Wealth and the Supply Price of Capital into Consumption Equations


Using the estimates of private sector wealth constructed by Helliwell and others in [5] and the supply price of capital derived by Boxall and Helliwell in [3], we have been able to construct several income variables for use in consumption equations. In this paper we outline the procedures used to develop the income variables along with the experiments underlying the equations we have chosen for use in our macro-economic model.

In section 2 we briefly review the theoretical model for the consumption equations, devoting some time to a discussion of the income variables used in the theoretical model. We also cover the proposed role of the supply price of capital in the consumption equations. Section 3 gives the notation and sources of data, while sections 4, 5 and 6 report the empirical work on the respective consumption categories of non-durables, household durables and motor vehicles. A final summary is given in section 7.