Specification and Estimation of ELES

The Extended Linear Expenditure System b reformulated to yield private per capita net worth as the basic explanatory variable. As a by-product the model implies that the marginal propensity to consume/save out of permanent income varies with the rate of interest. In the estimation, account is taken of inconsistencies in data compiled from different sources by explicity including the savings relationship in the system. Parameter estimates based on Australian data are presented.