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Econometric modeling of consumers' expenditure in Venezuela

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Author Info
Julia Campos
Neil R. Ericsson

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Abstract

Starting from a theoretical model with optimizing economic agents, we develop a highly parsimonious econometric model of consumers' expenditure on non-durables and services in Venezuela for 1970-85. Disposable income, liquidity, and inflation determine expenditure in an economically sensible fashion. The empirical model is robust and has constant, well-determined parameter estimates. In specifying it, econometric methodology plays a fundamental role, and we address issues of empirical model design and evaluation, cointegration, exogeneity, policy analysis, and encompassing. Using the last concept, a large class of expectations and VAR models is found to be incompatible with the data. In particular, Hall's (1978) hypothesis (derived from the life cycle-permanent income hypothesis) that expenditure is a random walk and only predictable from its own past is firmly rejected. The empirical model provides a clear interpretation for why that is so.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 325.

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Date of creation: 1988
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Handle: RePEc:fip:fedgif:325

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Related research
Keywords: Consumption (Economics) ; Venezuela;

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  1. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. David F. Hendry & Neil R. Ericsson, 1989. "An econometric analysis of UK money demand in MONETARY TRENDS IN THE UNITED STATES AND THE UNITED KINGDOM by Milton Friedman and Anna J. Schwartz," International Finance Discussion Papers 355, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  4. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Neil R. Ericsson & David F. Hendry, 1989. "Encompassing and rational expectations: how sequential corroboration can imply refutation," International Finance Discussion Papers 354, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  6. Julia Campos & Neil R. Ericsson & David F. Hendry, 1993. "Cointegration tests in the presence of structural breaks," International Finance Discussion Papers 440, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  7. Nicholas Dimsdale & N. Horsewood, 2001. "The Causes of Unemployment in Interwar Australia," Economics Series Working Papers 081, University of Oxford, Department of Economics. [Downloadable!]
  8. Julia Campos & Neil R. Ericsson, 2000. "Constructive data mining: modeling consumers' expenditure in Venezuela," International Finance Discussion Papers 663, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  9. Neil R. Ericsson, 1991. "Parameter constancy, mean square forecast errors, and measuring forecast performance: an exposition, extensions, and illustration," International Finance Discussion Papers 412, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  10. John S. Irons & N.Ericsson, . "An early version of The Lucas Critique in Practice: Theory without Measurement," Home Pages _004, Massachussets Institute of Technology, Economics. [Downloadable!]
  11. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers 838, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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