Why net worth is the wrong concept - John Muellbauer

The Institute for New Economic Thinking at the Oxford Martin School (INET Oxford) produces cutting-edge research aimed at building a fair, sustainable, and prosperous economy.INET Oxford is an interdisciplinary research institute based in the University of Oxford’s Martin School. The Institute is comprised of scholars from across the social and physical sciences who are pioneering new methods to better understand and address urgent real-world challenges such as the climate crisis, inequality, and technological change.Founded in 2012, INET Oxford today is one of the world’s leading centres for innovative economic scholarship, policy development, and the training of students and postdoctoral researchers in new economic methods.

The Institute for New Economic Thinking, Oxford

Prof John Muellbauer will present his new work.

Institute of New Economic Thinking and online

Most econometric policy models at central banks and elsewhere use an aggregate consumption function based on textbook theory. This assumes that the ‘representative household’ owns only a liquid asset, proxied by net worth, and never faces borrowing or liquidity constraints or transactions costs. This is inconsistent with the modern view of heterogeneous agent behaviour under uncertainty in incomplete markets. Based on data from 1980 to 2019, the conventional formulation for an aggregate consumption function for Italy is strongly rejected. Easier credit conditions raise consumption relative to income. The results show that the marginal propensities to consume out of household deposits and semi-liquid financial assets such as T-bills and mutual funds are greater than for less liquid assets. A significant positive effect from housing wealth is partly offset by the negative effect of affordability measured by the house price-to-income ratio. Implications for monetary transmission differ radically from those of the conventional form. The surge in liquid deposits in the pandemic helped sustain post-pandemic spending by more than implied by typical policy models.About the speaker:Professor John Muellbauer is a Senior Research Fellow of Nuffield College, Professor of Economics and a Senior Fellow of the Institute for New Economic Thinking at the Oxford Martin School, Oxford University. He is a Fellow of the British Academy, of the Econometric Society, and a CEPR Research Fellow. He has been a consultant to the World Bank, Bank of England, HM Treasury and the UK Ministry of Housing, Communities and Local Government (MHCLG). He has been a Visiting Scholar at the Federal Reserve Board and the IMF and was a Wim Duisenberg Visiting Fellow at the ECB in 2012/13 and a Fellow of the South African Reserve Bank (SARB) in 2018/19. His recent research was supported by grants from the Open Society Institute and the Oxford Martin School. He collaborates with economists from the Bank of Canada, Dallas Fed, Banque de France, Bundesbank and ECB on interactions between finance, housing and the real economy focused on the household sector; with Janine Aron on inflation forecasting and exchange rate pass-through, on mobile money for the Gates Foundation, and on mortgage delinquencies and foreclosures in the UK (for the UK’s MHCLG); with Annalisa Cristini and Andrea Geraci on polarisation and inequality in the UK labour market; with John Duca and Anthony Murphy (Dallas Fed), on lessons from the role of housing in the financial crisis, on what drives US house prices, and on the implications of the long-term shift in US credit market architecture. His research, with colleagues, on the impact of credit market liberalization on consumer debt, spending and housing markets in the UK, US, Canada, South Africa and Australia and relative non‐liberalisation in Japan and Germany throws new light on monetary transmission, financial stability and monetary policy. He and Janine Aron are currently assisting the SARB to develop tools and communication strategies for their new financial stability mandate. His most recent paper, “The Future of Macroeconomics”, is a critique of models used by central banks and proposes ways forward. In another 2018 paper, he explains why “the UK housing market is broken” and proposes a comprehensive set of solutions (see a more detailed version).

His 1980 paper with Angus Deaton, “An Almost Ideal Demand System” in the American Economic Review was selected as one of the top twenty papers published in the first one hundred years of that journal. Before coming to Nuffield College in 1981, John was Professor of Economics at Birkbeck College, London, and Lecturer at Warwick University. He obtained his first degree from Cambridge University, England and his Doctorate from the University of California.N﻿otes:With the speakers permission, this event will recorded and added to our <a href="https://www.youtube.com/channel/UCPHX8AJy-xOlNgDltU9bQpA" target="_blank" data-msys-clicktrack="0" rel="nofollow noopener noreferrer">YouTube channel</a> at a later date.Eventbrite processes data (including any personal data you may submit by booking this event) outside of the European Economic Area. Please only submit any personal data which you are happy to have processed in this way, and in accordance with Eventbrite’s privacy policy applicable to respondents (https://www.eventbrite.co.uk/support/articles/en_US/Troubleshooting/eventbrite-privacy-policy).If you prefer not to use Eventbrite for responding to this invitation, you may respond directly to events@inet.ox.ac.uk

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