Does nonlinear econometrics confirm the macroeconomic models of consumption?
This article aims at checking whether the macroeconomic models of consumption are always verified to reproduce the dynamics of consumption habits. We show that even if the Keynesian theory of consumption is still checked as the disposable income is a significant explanatory variable of household consumption, the dynamics of consumption cannot be reproduced anymore through the Post-Keynesian models like that of Brown (1952). While introducing nonlinearity and using the recent developments of Smooth Transition Regression (STR) models, we propose an extension for Brown's model and develop a Nonlinear Macroeconometric Model of Consumption (NMMC). Nonlinearity is justified by the structural breaks induced by habit formation and the irregularity in the evolution of the saving ratio since the seventies. Based on American and French data, our empirical results show that our model is statistically appropriate and leads to better performance than the usual macroeconomic specification of Brown.
Volume (Year): 5 (2008)
Issue (Month): 17 ()
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- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, August.
- Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002.
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Taylor & Francis Journals, vol. 21(1), pages 1-47.
- van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," SSE/EFI Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001.
- van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000. "Smooth transition autoregressive models - A survey of recent developments," Econometric Institute Research Papers EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
- Nadir Ocal & Denise R. Osborn, 2000. "Business cycle non-linearities in UK consumption and production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 27-43.
- Valerie Mignon & Gilles Dufrenot, 2004. "Modeling the French Consumption Function Using SETAR Models," Economics Bulletin, AccessEcon, vol. 3(20), pages 1-16.
- Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
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