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Revisiting UK consumers' expenditure: cointegration, breaks and robust forecasts

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  • David Hendry

Abstract

We revisit equilibrium-correction modelling of aggregate real consumers' expenditure in the UK, using Autometrics applied to the data in Davidson, Hendry, Srba and Yeo (DHSY; 1978). The many selection decisions involved in developing viable empirical models are discussed in a setting where there are more candidate explanatory variables than observations, here due to Impulse-Indicator Saturation (IIS) for detecting breaks, outliers and data contamination. Additional tests of the selected model include whether it encompasses the original specification, evidence of nonlinearity and if the conditioning variables are super exogenous. We consider how IIS affects economic interpretations of models, and conversely, and the implications of robust forecasting devices.

Suggested Citation

  • David Hendry, 2011. "Revisiting UK consumers' expenditure: cointegration, breaks and robust forecasts," Applied Financial Economics, Taylor & Francis Journals, vol. 21(1-2), pages 19-32.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:1-2:p:19-32
    DOI: 10.1080/09603107.2011.523173
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    1. Granger,Clive W. J., 1999. "Empirical Modeling in Economics," Cambridge Books, Cambridge University Press, number 9780521662086, November.
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    1. Olayeni, Olaolu Richard & Tiwari, Aviral Kumar & Wohar, Mark E., 2020. "Global economic activity, crude oil price and production, stock market behaviour and the Nigeria-US exchange rate," Energy Economics, Elsevier, vol. 92(C).

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