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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- John Y. Campbell, 1986.
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NBER Working Papers
1805, National Bureau of Economic Research, Inc.
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- Dean Croushore & Tom Stark, 2003.
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The Review of Economics and Statistics,
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- Dean Croushore & Tom Stark, 1999.
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99-4, Federal Reserve Bank of Philadelphia.
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CEPR Discussion Papers
6158, C.E.P.R. Discussion Papers.
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5271, C.E.P.R. Discussion Papers.
- Rosanne Cole, 1969. "Data Errors and Forecasting Accuracy," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 47-82 National Bureau of Economic Research, Inc.
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