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Progress from forecast failure -- the Norwegian consumption function

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Author Info

  • �yvind Eitrheim

    ()
    (Research Department, Norges Bank (The Central Bank of Norway), Norway)

  • Eilev S. Jansen

    ()
    (Research Department, Norges Bank (The Central Bank of Norway), Norway and Norwegian University of Science and Technology)

  • Ragnar Nymoen

    ()
    (Economics Department, University of Oslo, Norway and Research Department, Norges Bank (The Central Bank of Norway))

Abstract

After a forecast failure, a respecification is usually necessary to account for the data "ex post", in which case there is a gain in knowledge as a result of the forecast failure. Using Norwegian consumption as an example, we show that the financial deregulation in the mid-1980s led to forecast failure both for consumption functions (CFs) and Euler equations (EEs). We argue in the paper that such forecast failures would appear to be at odds with an underlying DGP belonging to the class of EEs, a result that also explains why progress took the form of a respecified CF where wealth plays a central role. That model is updated and is shown to have constant parameters despite huge changes in the income to wealth ratio over nine years of new data. Copyright Royal Economic Society 2002

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Econometrics Journal.

Volume (Year): 5 (2002)
Issue (Month): 1 (June)
Pages: 40-64

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Handle: RePEc:ect:emjrnl:v:5:y:2002:i:1:p:40-64

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References

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Cited by:
  1. Elin Halvorsen, 2003. "Financial Deregulation and Household Saving. The Norwegian Experience Revisited," Discussion Papers 361, Research Department of Statistics Norway.
  2. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2000. "Model Specification and Inflation Forecast Uncertainty," Working Paper Series 1302, Department of Economics, Norwegian University of Science and Technology, revised 29 Jan 2002.
  3. Eilev Jansen, 2013. "Wealth effects on consumption in financial crises: the case of Norway," Empirical Economics, Springer, vol. 45(2), pages 873-904, October.
  4. Juan Nicolás Hernández, 2006. "Revisión De Los Determinantes Macroeconómicos Del Consumo Total De Los Hogares Para El Caso Colombiano," BORRADORES DE ECONOMIA 003472, BANCO DE LA REPÚBLICA.
  5. Erlandsen, Solveig & Nymoen, Ragnar, 2005. "Consumption and population age structure," Memorandum 27/2004, Oslo University, Department of Economics.
  6. Nymoen, Ragnar, 2005. "Evaluating a Central Bank’s Recent Forecast Failure," Memorandum 22/2005, Oslo University, Department of Economics.
  7. Falch, Nina Skrove & Nymoen, Ragnar, 2011. "The accuracy of a forecast targeting central bank," Economics Discussion Papers 2011-6, Kiel Institute for the World Economy.
  8. Øyvind Eitrheim & Bjarne Gulbrandsen, 2001. "A model based approach to analysing financial stability," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 311-330 Bank for International Settlements.

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