IDEAS home Printed from
   My bibliography  Save this article

A forward-looking model of aggregate consumption in New Zealand


  • David Rae


An aggregate consumption function is estimated for New Zealand from 1974 to 1995. The instability of previous New Zealand models is addressed by using a broad measure of net wealth and a theoretically more sound measure of income. Households are assumed to be forward-looking, but only partly so. They form rational expectations of next year's real income, but thereafler use a simple rule of thumb: real income will grow at a constant rate. An econometrically stable cointegrating equation is estimated and it performs well out of sample. The main conclusions are that consumption closely follows net wealth over both short and long time horizons; it responds more to expectations of future household income than to current income; there is a strong negative relationship between savings and house prices, but no corresponding link to equity prices; and the impact of real interest rates on savings is positive but weak and possibly insignificant.

Suggested Citation

  • David Rae, 1997. "A forward-looking model of aggregate consumption in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 31(2), pages 199-220.
  • Handle: RePEc:taf:nzecpp:v:31:y:1997:i:2:p:199-220
    DOI: 10.1080/00779959709544274

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hall, Viv B. & Rae, David, 1998. "Fiscal expansion, monetary policy, interest rate risk premia, and wage reactions," Economic Modelling, Elsevier, vol. 15(4), pages 621-640, October.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:nzecpp:v:31:y:1997:i:2:p:199-220. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.