# Desired level of consumption (QEC)

## Changes to the FRB/US Model

- The linear relationship between the desired level of consumption and permanent income and wealth was replaced by a log-log specification. As in the previous model, the MPC is the same for both types of wealth. As a result, stock market wealth (WPS) and other wealth (WPO) are aggregated. The log-log specification has been adopted for consistency with spending variables in other equations in the model and to accelerate convergence dynamics following transient shocks.

QEC: Desired level of consumption
Old model

    log(qec) - qec_aerr = log
    (y_qec(1)*zyh
     + y_qec(2)*dcon*(zyh - zyht)
     + y_qec(3)*zyht
     + y_qec(4)*zyhp
     + y_qec(5)*(wpo + wps))

New model

    log(qec) - qec_aerr =
    y_qec(1)
     + y_qec(2)*log(zyh - zyht - zyhp)
     + y_qec(3)*log(zyht) + (1
     - y_qec(2)
     - y_qec(3)
     - y_qec(4))*log(zyhp)
     + y_qec(4)*log(wpo + wps)

- The DCON dummy variable and the minor adjustment that resulted from its presence were removed from the equation and FRB/US model as their impact was insufficent to justify their existence.