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Are there restrictions to consumption smoothing in Latin American countries? Differences between OLS and GLS estimation

  • Humberto Carlos Faria Teixeira
  • Joao Victor Issler

We study empirically how close consumption-smoothing models employing present-value relationships fit data for Latin-American countries, either in an open-economy or closed-economy environment. Bivariate VARS are estimated using either individual-system or a joint-system techniques (OLS or GLS - SURE). The latter are more efficient, as is widely known. Interestingly, Wald-Test results for OLS estimates are consistent with consumption smoothing, while GLS are not. However, this last result contradicts previous literature on this issue, which have found that Latin-American countries conform to consumption-smoothing models, with free-capital mobility and no liquidity constraints, which seems odd, given these countries' recent history

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 246.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:246
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