Presentation by: Philip Vermeulenb (European Central bank) OECD Conference on wealth inequalities: Measurement and policies Paris, 26 April 2018.

1. Is the top tail of the wealth distribution the
missing link between the HFCS and
National Accounts?
Robin Chakrabortya
, Ilja Kristian Kavoniusb
, Sébastien Pérez-Duarteb
, Philip Vermeulenb
Deutsche Bundesbanka
& European Central bankb
Conference on wealth inequalities
OECD April 26 2018

2. Rubric
www.ecb.europa.eu ©
This slideshow should not be reported as representing the views of
the European Central Bank (ECB) or the Deutsche Bundesbank. The
views expressed are those of the author.
Link HFCS and National Accounts 2

3. Rubric
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Main Idea
Can we reconcile micro-household wealth data from surveys with
aggregate data from financial accounts?
Issues:
•Conceptual and generic differences
•Underrepresentation of wealthy households
•Underreporting in household surveys
We try to explain and quantify the discrepancy between the HFCS
and the financial accounts
Discuss some different methodologies to adjust for missing wealth in
surveys
Link HFCS and National Accounts 3

4. Rubric
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Why reconciliation of HFCS and National
accounts?
Household Finance and Consumption Survey (HFCS): triennial
survey, conducted in a harmonised way in 18 Euro Area countries as
well as in Hungary and Poland, for a sample of 84,000 households
(2nd
wave)
•Household wealth surveys are commonly used to analyze inequality
•Distributional national accounts (EG-DNA; Alvaredo et al. 2016;
Piketty et al., 2018), OECD WDD Database
ECB initiative: Expert group on Linking Micro and Macro Household
data (EG-LMM)
Link HFCS and National Accounts 4

5. Rubric
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Conceptual linkages between HFCS and NA
HFCS uses concepts which are aligned to the financial accounts
where possible
Some issues:
•HFCS does not collect currency (F.21 in FA)
•Equity in financial accounts is:
F.51: Listed Shares + F.512 Unlisted Shares + F.519 Other Equity
•Equity in HFCS is:
HD1510 Publicly traded shares + HD02000 Investment in Self-
employed business + HD1010 Non-self-employment not publicly
traded business
• valuation and accounting for insurance and pensions
Link HFCS and National Accounts 5

6. Rubric
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Generic differences
• Population: HFCS excludes persons living in institutions and some
other differences (e.g. French overseas territories)
• Timing: HFCS value at time of interview or end year.
• Potential measurement problems in FA (closed system)
• Underreporting and item-non-response (multiple imputation)
Link HFCS and National Accounts 6

7. Rubric
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Generic differences: issue of self-employment
business wealth
• Case 1: Sole-proprietorships & partnerships not classified as
quasi-corporations in the Financial accounts:
- HFCS: net value
- FA: assets and liabilities are distributed across balance sheet
• Case 2: Sole-proprietorships & partnerships that are classified as
quasi-corporations in the Financial accounts
- HFCS: net value
- FA: net value (Other equity)
• Case 3: Limited liability companies
- HFCS: net value
- FA: net value (Other equity)
Link HFCS and National Accounts 7

8. Rubric
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Comparison HFCS-NA: financial assets
• Naïve comparison: Compare total financial assets in HFCS with
total financial assets in FA.
• Adjusted concept 1: Reclassify self-employed business as financial
asset, and exclude various items from FA (insurance, currency,
loans,..) which are not covered by HFCS
• Adjusted concept 2: Adjusted concept 1 minus Sole
proprietorships
Link HFCS and National Accounts 8

9. Rubric
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Underrepresentation of wealthy households
• Adjusted concept 1: goes a long way but still too low financial
assets in HFCS compared to financial accounts
• Wealth is concentrated at the top.
Link HFCS and National Accounts 9

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Dealing with underrepresentation at the top
•Idea: Replace the observations above a certain threshold of
household wealth with an estimated Pareto distribution
•P(W>w)=(T/w)a
T: Threshold parameter
•Take all observations above Threshold wealth (adding extraneous
data points such as e.g. Rich lists helps)
•i rank of the observation ; w is wealth ; Nfi average weight
•T : we take 500,000 euro ; 1 million euro ; 2 million euro
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Dealing with underrepresentation at the top
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Coverage ratio increases further
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Conclusion
•Part of the gap between HFCS and Financial accounts can be
explained by conceptual differences
•Remaining challenges:
1.Top of the wealth distribution: it only explains part of the gap
between HFCS and Financial accounts
2.Sole proprietorships: Can we better identify the differences
between HFCS and Financial accounts? Net equity position or assets
and liabilities?
3.Is there a general underreporting problem in household surveys?
4.Valuation differences surveys versus financial accounts?
Link HFCS and National Accounts 13