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Econometric Evaluation of Consumers' Expenditure Equations

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Author Info

  • Church, Keith B
  • Smith, Peter N
  • Wallis, Kenneth F

Abstract

Large errors in forecasting consumption in the late 1980s and early 1990s were a major contribution to the poor performance in economic forecasting overall. These errors have been attributed to the inability of existing models to capture important influences on consumer behavior, such as the effects of financial deregulation and shifts in expectations. Revisions to models followed their failure to predict the late 1980s boom; an important question is whether these developments help to explain the unanticipated downturn in consumers' expenditure in the early 1990s. This article presents an appraisal of eight recent U.K. consumption functions. It is found that these models can explain much of the rise in consumption in the late 1980s. However, forecast errors for the early 1990s, while within the historical range, are predominantly negative. The nature of this overprediction suggests that further research on household finances, including the role of housing as collateral, is required. Copyright 1994 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 10 (1994)
Issue (Month): 2 (Summer)
Pages: 71-85

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Handle: RePEc:oup:oxford:v:10:y:1994:i:2:p:71-85

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Emilio Fernandez-Corugedo & Simon Price & Andrew Blake, 2003. "The dynamics of consumers' expenditure: the UK consumption ECM redux," Bank of England working papers 204, Bank of England.
  2. K Alec Chrystal & Paul Mizen, 2001. "Consumption, money and lending: a joint model for the UK household sector," Bank of England working papers 134, Bank of England.
  3. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1998. "Asymmetries in Housing and Financial Market Institutions and EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 54-80, Autumn.
  4. Byung Yeon Kim, . "Soviet Household Saving Function," Ace Project Memoranda 96/14, Department of Economics, University of Leicester.
  5. David Begg & Stephany Griffith-Jones, 1998. "Swinging since the 60's: Fluctuations in UK Saving and Lessons for Latin America," Research Department Publications 3032, Inter-American Development Bank, Research Department.
  6. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  7. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
  8. S. Sgherri, 2000. "Monetary Transmission Channels, Monetary Regimes and ConsumptionBehaviour," DNB Staff Reports (discontinued) 53, Netherlands Central Bank.
  9. Khoon Lek Goh & Richard Downing, 2002. "Modelling New Zealand Consumption Expenditure over the 1990s," Treasury Working Paper Series 02/19, New Zealand Treasury.
  10. Nathalie Girouard & Sveinbjörn Blöndal, 2001. "House Prices and Economic Activity," OECD Economics Department Working Papers 279, OECD Publishing.

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