11 assigned to investment rather than consumption nowever, for several othar sectors _tho_ prok ems of assigning total supply into its demand components is more difficult. The more serious problems arise in those sectors which products can go to several different demand compenents, particularly, when the fixed coefficients are iikely to be out of date as in Mexico. Most food production, for example, can go to internediate demaind, private consumption, stock accumulation (if storable) and orports.

While the good characteristics help assigning the good tc investment and consumption, something else is required to discriminate when a good goes to stock accumulation or is actually invested or consumed. That usually requires good-quality survey data on sales at the sector or company level. The difference between what is produced and what is sold is the stock accumulation. The lack of good sales information normally implies having to use fixed distribution coofficient. from the base period. The coefficients are mora likely to be stable or loss variable for consumption aud investment, and therefore stock accumulation is often thcs residual variable. Surveys on sales and stocks are therefore the critical input for e good d.stribution between investment or consumption and stock accumulation. Surveys on salis are less complete for quarterly data series which, thus, are mora noisy than annual data. In this i port we therefore only employ annual data.

# 2.3 Durable Consumption

One fundamental question one wants to address when studying private saving and consumption series is to know whether any change in the rate of private wealth accumulation is permanent or transitory. The implicatioAs for public policy and the economy in general are dramatically different if such an increase is permanent or transitory. A permanent increase in consumption would not raise much concoin if based in a permanent increase in income, while it would be fairly unwise if the charge is due to misinterpretation (as permanent) of a transitory shock in income. However, because it is SO difficult to disentangle permanent and transitory shocks from income, a large decrease in saving rates (increase in consumption) is normally viewed with concern.

However, there is one case when it is rather easy to judge that<sup>an</sup> increase in consu'iption is transitory and therefore there should not be much policy concera, and that is when most of the incroase is in durable goods in the wake of a trade liberalization (as in Mexico8s). Because prior to trade liberalization demand for durable goods may have been repressed, through quotas, once trade is liberalized a sudden once-and-for-all increase in the stock of durable consumption is lkel7 to take place. Consumer durable imports may alwo overshoot if agents expect a reversal of trade liberal iation (the increase in demand for imported consumer durables being linked to expected capital gains from the policy reversal).

Alternatively, we could think of durable expenditures as investment expenditures and ascribe to consumption only a service flow associated to the stock of durable g;oods. In the next section we will consider the durable-nondurable decomposition when interpreting the movement of private saving rates in Mexico.

# 2.4 Data.

All raw variables employed in this study are listed in Annex P. All