Modelling Aggregate Consumption Growth with Time-Varying Parameters
AbstractUsing 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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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse15_2005.
Date of creation: Jun 2005
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Aggregation; Consumption Function; Average Derivative;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
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