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Progress from forecast failure -- the Norwegian consumption function

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Author Info
Øyvind 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))

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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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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Banerjee, Anindya & Hendry, David F, 1992. "Testing Integration and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 225-55, August.
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  3. Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-61, September. [Downloadable!] (restricted)
  4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  5. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-73, November. [Downloadable!] (restricted)
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  6. Hendry, David F, 1995. "Econometrics and Business Cycle Empirics," Economic Journal, Royal Economic Society, vol. 105(433), pages 1622-36, November. [Downloadable!] (restricted)
  7. Jansen, Eilev S & Terasvirta, Timo, 1996. "Testing Parameter Constancy and Super Exogeneity in Econometric Equations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 735-63, November.
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  8. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June. [Downloadable!] (restricted)
  9. Berg, Lennart & Bergstrom, Reinhold, 1995. " Housing and Financial Wealth, Financial Deregulation and Consumption--The Swedish Case," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(3), pages 421-39, September.
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  11. Franses, Philip Hans, 1992. "The Norwegian Consumption Function: A Comment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 455-59, August.
  12. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gunnar Bardsen & Eilev Jansen & Ragnar Nymoen, 2002. "Model Specification and Inflation Forecast Uncertainty," Annales d'Economie et de Statistique, ADRES, issue 67-68, pages 17, Juillet-D. [Downloadable!]
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  2. Elin Halvorsen, 2003. "Financial Deregulation and Household Saving. The Norwegian Experience Revisited," Discussion Papers 361, Research Department of Statistics Norway. [Downloadable!]
  3. Erlandsen, Solveig & Nymoen, Ragnar, 2005. "Consumption and population age structure," Memorandum 27/2004, Oslo University, Department of Economics. [Downloadable!]
  4. Solveig Erlandsen & Ragnar Nymoen, 2008. "Consumption and population age structure," Journal of Population Economics, Springer, vol. 21(3), pages 505-520, July. [Downloadable!] (restricted)
  5. Nymoen, Ragnar, 2005. "Evaluating a Central Bank’s Recent Forecast Failure," Memorandum 22/2005, Oslo University, Department of Economics. [Downloadable!]
  6. Solveig K. Erlandsen & Ragnar Nymoen, 2004. "Consumption and population age structure," Working Paper 2004/22, Norges Bank. [Downloadable!]
  7. 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. [Downloadable!]
    Other versions:
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