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Survey Expectations in the Time Series Consumption Function

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  • Batchelor, Roy
  • Dua, Pami

Abstract

This paper introduces survey-based measures of expectations and uncertainties about income and real interest rates into an otherwise conventional consumption function. The survey dat a contribute more than conventional variables to the explanation of changes in consumption. The hypothesis that consumption follows a random walk is rejected in favor of a model in which consumption responds with a lag to changes in expected income growth. The significance of inflation in earlier estimates of the U.S. consumpti on function is shown to be spurious and due to a strong negative correlation between expected inflation and expected income growth. Copyright 1992 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 74 (1992)
Issue (Month): 4 (November)
Pages: 598-606

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Handle: RePEc:tpr:restat:v:74:y:1992:i:4:p:598-606

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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Cited by:
  1. Jeffrey C. Fuhrer, 1993. "What role does consumer sentiment play in the U.S. macroeconomy?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jan, pages 32-44.
  2. Baghestani, Hamid & Kherfi, Samer, 2008. "How well do U.S. consumers predict the direction of change in interest rates?," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(4), pages 725-732, November.
  3. Parigi, Giuseppe & Schlitzer, Giuseppe, 1997. "Predicting consumption of Italian households by means of survey indicators," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(2), pages 197-209, June.
  4. Jan Marc Berk, 2002. "Consumers' Inflation Expectations And Monetary Policy In Europe," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 20(2), pages 122-132, 04.
  5. Tolar, Martin Michael, 1997. "A behavioral model of nondurable consumption expenditure," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 26(3), pages 291-302.
  6. Marc-André Gosselin & René Lalonde, 2003. "Un modèle « PAC » d'analyse et de prévision des dépense des ménages américains," Working Papers, Bank of Canada 03-13, Bank of Canada.
  7. Wärneryd, K., 1995. "Demystifying rational expectations theory through an economic-psychological model," Discussion Paper, Tilburg University, Center for Economic Research 1995-92, Tilburg University, Center for Economic Research.
  8. Luis Opazo, 2006. "The Backus-Smith Puzzle: The Role of Expectations," Working Papers Central Bank of Chile, Central Bank of Chile 395, Central Bank of Chile.
  9. Roberto Golinelli & Giuseppe Parigi, 2003. "What is this thing called confidence? A comparative analysis of consumer confidence indices in eight major countries," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 484, Bank of Italy, Economic Research and International Relations Area.

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