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Modelling Aggregate Consumption Growth with Time-Varying Parameters

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Author Info
Jürgen Arns
Kaushik Bhattacharya

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Abstract

Using the Family Expenditure Survey (FES) data for the United Kingdom (UK), the paper specifies and estimates a ’complete’ Hilden- brand Kneip (HK) model of consumption, extending earlier efforts that were ’partial’ in nature. As the estimated parameters in the ’partial’ HK model are time varying, the paper provides empirical evi- dence that their movements over time reflect a near unit root process. To estimate the ’complete’ HK model, the paper specifies a simple OLS model of the ’remainder term’ in the ’partial’ HK model. The remainder term in the partial HK model, which as per theory should be influenced by unobservable variables like expectation formation of households, is found to be affected by housing prices. The complete model is found to explain movements in consumption better than the partial model. Results based on bootstrap suggest that given the sampling error in the FES data, the overall fit of the model should be considered as good.

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Publisher Info
Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse15_2005.

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Length: 36
Date of creation: Jun 2005
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Handle: RePEc:bon:bonedp:bgse15_2005

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de/index.php?id=494

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Related research
Keywords: Aggregation Consumption Function Average Derivative

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Find related papers by JEL classification:
C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
D1 - Microeconomics - - Household Behavior

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References listed on IDEAS
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.:
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    Other versions:
  5. Hildenbrand, W. & Kneip, A. & Utikal, K.J., 1998. "Une analyse non parametrique des distributions du revenu et des caracteristiques des menages," Papers 9809, Catholique de Louvain - Institut de statistique.
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    Other versions:
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    Other versions:
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Cited by:
(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. Michal Paluch & Alois Kneip & Werner Hildenbrand, . "Individual versus Aggregate Income Elasticities for Heterogeneous Populations," Bonn Econ Discussion Papers bgse13_2007, University of Bonn, Germany. [Downloadable!]
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