Mismeasured personal saving and the permanent income hypothesis
Is it possible to forecast using poorly measured data? According to the permanent income hypothesis, a low personal saving rate should predict rising future income (Campbell, 1987). However, the U.S. personal saving rate is initially poorly measured and has been repeatedly revised upward in benchmark revisions. The authors use both conventional and real-time estimates of the personal saving rate in vector autoregressions to forecast real disposable income; using the level of the personal saving rate in real time would have almost invariably made forecasts worse, but first differences of the personal saving rate are predictive. They also test the lay hypothesis that a low personal saving rate has implications for consumption growth and find no evidence of forecasting ability.
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References listed on IDEAS
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- Michael J. Boskin, 2000. "Economic Measurement: Progress and Challenges," American Economic Review, American Economic Association, vol. 90(2), pages 247-252, May.
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Econometric Society, vol. 55(6), pages 1249-73, November.
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CEPR Discussion Papers
6158, C.E.P.R. Discussion Papers.
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- Dean Croushore & Tom Stark, 2003.
"A Real-Time Data Set for Macroeconomists: Does the Data Vintage Matter?,"
The Review of Economics and Statistics,
MIT Press, vol. 85(3), pages 605-617, August.
- Dean Croushore & Tom Stark, 1999. "A real-time data set for marcoeconomists: does the data vintage matter?," Working Papers 99-21, Federal Reserve Bank of Philadelphia.
- Croushore, Dean, 2006. "Forecasting with Real-Time Macroeconomic Data," Handbook of Economic Forecasting, Elsevier.
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