IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/2000_032.html
   My bibliography  Save this paper

Progress from forecast failure : the Norwegian consumption function

Author

Listed:
  • Eitrheim,O.
  • Jansen,E.S.
  • Nymoen,R.

    (University of Oslo, Department of Economics)

Abstract

After a forecast failure, a respecification is usually necessary to account for the data "ex post", in which case there is a gain in knowledge as a result of the forecast failure. Using Norwegian consumption as an example, we show that the financial deregulation in the mid-1980s led to forecast failure both for consumption functions (CFs) and Euler equations (EEs). We argue in the paper that such forecast failures would appear to be at odds with an underlying DGP belonging to the class of EEs, a result that also explains why progress took the form of a respecified CF where wealth plays a central role. That model is updated and is shown to have constant parameters despite huge changes in the income to wealth ratio over nine years of new data. Copyright Royal Economic Society 2002
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Eitrheim,O. & Jansen,E.S. & Nymoen,R., 2000. "Progress from forecast failure : the Norwegian consumption function," Memorandum 32/2000, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2000_032
    as

    Download full text from publisher

    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2000/Memo-32-2000.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Berg, Lennart & Bergstrom, Reinhold, 1995. " Housing and Financial Wealth, Financial Deregulation and Consumption--The Swedish Case," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 421-439, September.
    2. David F. Hendry & Jurgen A. Doornik, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-461, September.
    3. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    4. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
    5. Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-461, September.
    6. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
    7. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, January.
    8. Haug, Alfred A, 1996. "Blanchard's Model of Consumption: An Empirical Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 169-177, April.
    9. Franses, Philip Hans, 1992. "The Norwegian Consumption Function: A Comment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 455-459, August.
    10. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    11. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    13. Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895, December.
    14. Hendry, David F, 1995. "Econometrics and Business Cycle Empirics," Economic Journal, Royal Economic Society, vol. 105(433), pages 1622-1636, November.
    15. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
    16. Jansen, Eilev S & Terasvirta, Timo, 1996. "Testing Parameter Constancy and Super Exogeneity in Econometric Equations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 735-763, November.
    17. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    18. Berg, Lennart, 1994. "Household Savings and Debts: The Experience of the Nordic Countries," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 10(2), pages 42-53, Summer.
    19. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    20. Banerjee, Anindya & Hendry, David F, 1992. "Testing Integration and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 225-255, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Engelbert Stockhammer & Erik Bengtsson, 2020. "Financial effects in historic consumption and investment functions," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 304-326, May.
    2. Juan Nicolás Hernández A, 2006. "Revisión de los determinantes macroeconómicos del consumo total de los hogares para el caso colombiano," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 24(52), pages 80-109, December.
    3. Ragnar Nymoen & Kari Pedersen & Jon Ivar Sjåberg, 2019. "Estimation of Effects of Recent Macroprudential Policies in a Sample of Advanced Open Economies," IJFS, MDPI, vol. 7(2), pages 1-20, May.
    4. Gunnar Bardsen & Eilev Jansen & Ragnar Nymoen, 2002. "Model Specification and Inflation Forecast Uncertainty," Annals of Economics and Statistics, GENES, issue 67-68, pages 495-517.
    5. André K. Anundsen & Ragnar Nymoen, 2015. "Did US consumers ‘save for a rainy day’ before the Great Recession?," Working Paper 2015/08, Norges Bank.
    6. Elin Halvorsen, 2003. "Financial Deregulation and Household Saving. The Norwegian Experience Revisited," Discussion Papers 361, Statistics Norway, Research Department.
    7. Skrove Falch, Nina & Nymoen, Ragnar, 2011. "The accuracy of a forecast targeting central bank," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-36.
    8. Eilev Jansen, 2013. "Wealth effects on consumption in financial crises: the case of Norway," Empirical Economics, Springer, vol. 45(2), pages 873-904, October.
    9. Øyvind Eitrheim & Bjarne Gulbrandsen, 2001. "A model based approach to analysing financial stability," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 311-330, Bank for International Settlements.
    10. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    11. Pål Boug & Ådne Cappelen & Eilev S. Jansen & Anders Rygh Swensen, 2021. "The Consumption Euler Equation or the Keynesian Consumption Function?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(1), pages 252-272, February.
    12. Madalina-Gabriela ANGHEL & Aurelian DIACONU, 2016. "Equilibrium and auto regression models used for macroeconomic prognosis," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(7), pages 70-78, July.
    13. Ioan PARTACHI & Alexandru MANOLE, 2015. "Some theoretical aspects regarding non-linear econometric models utilized in economic analyses," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 63(9), pages 125-128, September.
    14. Solveig Erlandsen & Ragnar Nymoen, 2008. "Consumption and population age structure," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 505-520, July.
    15. Ragnar Nymoen, 2017. "Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation," Econometrics, MDPI, vol. 5(1), pages 1-54, January.
    16. Nymoen, Ragnar, 2005. "Evaluating a Central Bank’s Recent Forecast Failure," Memorandum 22/2005, Oslo University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers 838, Board of Governors of the Federal Reserve System (U.S.).
    2. Hendry, David F. & Mizon, Grayham E., 2001. "Reformulating empirical macro-econometric modelling," Discussion Paper Series In Economics And Econometrics 104, Economics Division, School of Social Sciences, University of Southampton.
    3. Hendry, David F. & Mizon, Grayham E., 2001. "Reformulating empirical macro-econometric modelling," Discussion Paper Series In Economics And Econometrics 0104, Economics Division, School of Social Sciences, University of Southampton.
    4. André Kallåk Anundsen & Ragnar Nymoen, 2015. "Did US Consumers 'Save for a Rainy Day' Before the Great Recession?," CESifo Working Paper Series 5347, CESifo.
    5. Cook, S., 1996. "Econometric methodology I," Discussion Paper Series In Economics And Econometrics 9618, Economics Division, School of Social Sciences, University of Southampton.
    6. Ulph, A., 1997. "Political institutions and the design of environmental policy in a federal system with asymmetric information," Discussion Paper Series In Economics And Econometrics 9718, Economics Division, School of Social Sciences, University of Southampton.
    7. Aldrich, J., 1992. "Haavelmo's Identification Theory," Discussion Paper Series In Economics And Econometrics 9218, Economics Division, School of Social Sciences, University of Southampton.
    8. Ulph, A., 1993. "Environmental policy and international trade when governments and producers act strategically," Discussion Paper Series In Economics And Econometrics 9318, Economics Division, School of Social Sciences, University of Southampton.
    9. Ulph, A., 1995. "International environmental regulation when national governments act strategically," Discussion Paper Series In Economics And Econometrics 9518, Economics Division, School of Social Sciences, University of Southampton.
    10. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    11. Hendry, D.F. & Mizon, G.E., 1999. "On selecting policy analysis models by forecast accuracy," Discussion Paper Series In Economics And Econometrics 9918, Economics Division, School of Social Sciences, University of Southampton.
    12. Chadha, J.S. & Schellekens, P., 1998. "Utility functions for central bankers: the not so drastic quadratic," Discussion Paper Series In Economics And Econometrics 9818, Economics Division, School of Social Sciences, University of Southampton.
    13. Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March.
    14. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-387, October.
    15. David Hendry, 2000. "A General Forecast-error Taxonomy," Econometric Society World Congress 2000 Contributed Papers 0608, Econometric Society.
    16. Hansen, Hermann-Josef, 1996. "Der Einfluß der Zinsen auf den privaten Verbrauch in Deutschland," Discussion Paper Series 1: Economic Studies 1996,03, Deutsche Bundesbank.
    17. Ericsson, Neil R., 2017. "Economic forecasting in theory and practice: An interview with David F. Hendry," International Journal of Forecasting, Elsevier, vol. 33(2), pages 523-542.
    18. David F. Hendry & Grayham E. Mizon, 2016. "Improving the teaching of econometrics," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1170096-117, December.
    19. Hansen, Hermann-Josef, 1996. "The impact of interest rates on private consumption in Germany," Discussion Paper Series 1: Economic Studies 1996,03e, Deutsche Bundesbank.
    20. Hendry, David F., 1997. "On congruent econometric relations : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 163-190, December.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    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:hhs:osloec:2000_032. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mari Strønstad Øverås (email available below). General contact details of provider: https://edirc.repec.org/data/souiono.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.