Page 73 - Invited Paper Session (IPS) - Volume 2

IPS184 Sanvi Avouyi-Dovi et al.

French households’ portfolio: The financial
almost ideal demand system appraisal
Sanvi Avouyi-Dovi, Christian Pfister, Franck Sédillot
Banque de France

Abstract
French households have sharply increased their accumulation of financial
wealth over the last three decades. This paper seeks to find explanatory factors
of these changes. For this purpose, we estimate a financial AIDS (FAIDS) to
French households’ portfolio choices. This framework is an extension of the
seminal AIDS model of Deaton and Muellbauer (1980a) to the financial
portfolio.
We find that most of the estimated parameters of the benchmark model are
in line with economic priors. In particular, wealth and real returns are the key
determinants of the long run dynamics of the different shares. Moreover, some
additional exogenous factors improve the general performance of the model,
highlighting the role of uncertainty or demographic factors in the changes in
the structure of French households’ portfolio. The main results remain valid
under some alternative assumptions implemented in the context of some
robustness checks.

Keywords
Saving; model; wealth; return

1. Introduction
French households have sharply increased their accumulation of financial
wealth over the last three decades. While their financial wealth represented
less than 5 times their disposable income at the end of 1980, the ratio of
wealth to disposable income reached around 11 at the end of 2016. In
addition, the structure of households’ financial portfolio greatly evolved over
the period 1978-2016. For instance, currency plus overnight deposits and
short-term saving deposits accounted for 58% of total financial wealth in 1978
and only around 30% in 2016. Life insurance contracts accounted for 4% of
total financial wealth in 1978; about three decades later, this asset represents
44% of French households’ portfolio. This paper seeks to find explanatory
factors of these changes. For this purpose, the choice of a model structure has
to be made.
In recent decades, many demand functions consistent with economic
theory have been examined in the literature. Most of them have been
described as flexible functional forms based on the duality theory. The most

60 | I S I W S C 2 0 1 9