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The Long-Run Australian Consumption Function Reexamined: An Empirical Exercise in Bayesian Influence

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Author Info
Peter C.B. Phillips () (Cowles Foundation, Yale University)

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Abstract

This paper reports an empirical application of new Baynesian methodology to Australian data on consumption, income, liquid assets and inflation. The methods involve the use of objective model based reference priors and objective posterior odds test criteria. The paper provides an overview of this methodology, which is based on recent work by the author (1991) and joint work with Werner Ploberger (1991) and Eric Zivot (1991). The empirical application involves tests of nonstationarity and cointegration in the data and various long-run model specifications are studied in detail. Bayesian empirical results are presented alongside well-known classical tests and are shown to provide especially useful evidence in cases where the classical test results are mixed. Our empirical results show that real private consumption expenditure and household disposal income are not cointegrated either in real or nominal terms. Instead we find strong empirical support for the inclusion of an inflation or relative capital loss measure in the Australian consumption function. Suitable measures of these variables are constructed and a final specification is recommended which yields a long-run cointegrating relation that is empirically compatible in real and nominal terms.

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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1000.

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Length: 45 pages
Date of creation: Oct 1991
Date of revision:
Publication status: Published in Colin Hargreaves, eds., Macroeconomic Modelling of the Long Run, 1992, pp. 287-322
Handle: RePEc:cwl:cwldpp:1000

Note: CFP 825.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Bayes model; cointegration; consumption function; steady state; unit root; Bayesian analysis;

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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.:

  1. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality," Cowles Foundation Discussion Papers 977, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  2. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  3. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  4. Peter C.B. Phillips, 1991. "Bayesian Routes and Unit Roots: de rebus prioribus semper est disputandum," Cowles Foundation Discussion Papers 986, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  5. repec:cup:etheor:v:7:y:1991:i:1:p:1-21 is not listed on IDEAS
  6. James H. Stock & Mark W. Watson, 1989. "A Simple MLE of Cointegrating Vectors in Higher Order Integrated Systems," NBER Technical Working Papers 0083, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  8. Christopher A. Sims, 1988. "Bayesian skepticism on unit root econometrics," Discussion Paper / Institute for Empirical Macroeconomics 3, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  9. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March. [Downloadable!] (restricted)
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  10. Poirier, Dale J, 1988. "Frequentist and Subjectivist Perspectives on the Problems of Model Building in Economics," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 121-44, Winter. [Downloadable!] (restricted)
  11. Peter C.B. Phillips & Werner Ploberger, 1991. "Time Series Modelling with a Bayesian Frame of Reference: 1. Concepts and Illustrations," Cowles Foundation Discussion Papers 980, Cowles Foundation, Yale University. [Downloadable!]
  12. Geweke, John, 1988. "Comment on Poirer: Operational Bayesian Methods in Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 159-66, Winter. [Downloadable!] (restricted)
  13. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March. [Downloadable!]
  14. Peter C.B. Phillips, 1988. "Spectral Regression for Cointegrated Time Series," Cowles Foundation Discussion Papers 872, Cowles Foundation, Yale University. [Downloadable!]
  15. Hiro Y. Toda & Peter C.B. Phillips, 1991. "The Spurious Effect of Unit Roots on Exogeneity Tests in Vector Autoregressions: An Analytical Study," Cowles Foundation Discussion Papers 978, Cowles Foundation, Yale University. [Downloadable!]
  16. Phillips, P C B, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 333-64, Oct.-Dec.. [Downloadable!] (restricted)
    Other versions:
  17. Peter C.B. Phillips, 1991. "Unit Roots," Cowles Foundation Discussion Papers 998, Cowles Foundation, Yale University. [Downloadable!]
  18. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation, Yale University, revised Apr 1989. [Downloadable!]
  19. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January. [Downloadable!] (restricted)
  20. Leamer, Edward E, 1988. "Things That Bother Me," The Economic Record, The Economic Society of Australia, vol. 64(187), pages 331-35, December.
  21. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  22. DeJong, David N & Whiteman, Charles H, 1991. "The Temporal Stability of Dividends and Stock Prices: Evidence from the Likelihood Function," American Economic Review, American Economic Association, vol. 81(3), pages 600-617, June. [Downloadable!] (restricted)
  23. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Blackwell Publishing, vol. 4(3), pages 249-73.
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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. Peter C.B. Phillips, 1991. "Unit Roots," Cowles Foundation Discussion Papers 998, Cowles Foundation, Yale University. [Downloadable!]
  2. Gael M. Martin, 2000. "US deficit sustainability: a new approach based on multiple endogenous breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 83-105. [Downloadable!]
    Other versions:
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