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Survey Expectations in the Time Series Consumption Function

Author

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  • Batchelor, Roy
  • Dua, Pami

Abstract

This paper introduces survey-based measures of expectations and uncertainties about income and real interest rates into an otherwise conventional consumption function. The survey dat a contribute more than conventional variables to the explanation of changes in consumption. The hypothesis that consumption follows a random walk is rejected in favor of a model in which consumption responds with a lag to changes in expected income growth. The significance of inflation in earlier estimates of the U.S. consumpti on function is shown to be spurious and due to a strong negative correlation between expected inflation and expected income growth. Copyright 1992 by MIT Press.

Suggested Citation

  • Batchelor, Roy & Dua, Pami, 1992. "Survey Expectations in the Time Series Consumption Function," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 598-606, November.
  • Handle: RePEc:tpr:restat:v:74:y:1992:i:4:p:598-606
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    Citations

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    Cited by:

    1. Baghestani, Hamid & Kherfi, Samer, 2008. "How well do U.S. consumers predict the direction of change in interest rates?," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 725-732, November.
    2. Roberto Golinelli & Giuseppe Parigi, 2003. "What is this thing called confidence? A comparative analysis of consumer confidence indices in eight major countries," Temi di discussione (Economic working papers) 484, Bank of Italy, Economic Research and International Relations Area.
    3. Marc-André Gosselin & René Lalonde, 2003. "Un modèle « PAC » d'analyse et de prévision des dépense des ménages américains," Staff Working Papers 03-13, Bank of Canada.
    4. Berk, Jan Marc, 2000. "Consumers' inflation expectations and monetary policy in Europe," Serie Research Memoranda 0020, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    5. Jeffrey C. Fuhrer, 1993. "What role does consumer sentiment play in the U.S. macroeconomy?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 32-44.
    6. Parigi, Giuseppe & Schlitzer, Giuseppe, 1997. "Predicting consumption of Italian households by means of survey indicators," International Journal of Forecasting, Elsevier, vol. 13(2), pages 197-209, June.
    7. Oscar Claveria & Enric Monte & Salvador Torra, 2018. "“Tracking economic growth by evolving expectations via genetic programming: A two-step approach”," IREA Working Papers 201801, University of Barcelona, Research Institute of Applied Economics, revised Jan 2018.
    8. Wärneryd, K.E., 1995. "Demystifying rational expectations theory through an economic-psychological model," Discussion Paper 1995-92, Tilburg University, Center for Economic Research.
    9. Luis Opazo, 2006. "The Backus-Smith Puzzle: The Role of Expectations," Working Papers Central Bank of Chile 395, Central Bank of Chile.
    10. repec:spr:qualqt:v:51:y:2017:i:6:d:10.1007_s11135-016-0416-0 is not listed on IDEAS
    11. Oscar Claveria & Enric Monte & Salvador Torra, 2017. "“Let the data do the talking: Empirical modelling of survey-based expectations by means of genetic programming”," AQR Working Papers 201706, University of Barcelona, Regional Quantitative Analysis Group, revised May 2017.
    12. repec:spr:soinre:v:135:y:2018:i:1:d:10.1007_s11205-016-1490-3 is not listed on IDEAS
    13. Tolar, Martin Michael, 1997. "A behavioral model of nondurable consumption expenditure," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 26(3), pages 291-302.

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