Progress From Forecast Failure—The Norwegian Consumption Function  

Oleh:

Eitrheim, Oyvind ; Jansen, Eilev S. ; Nymoen, Ragnar

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Econometrics Journal vol. 5 no. 1 (2002), page 40-64.
Topik: Consumption functions; Equilibrium correction models; Euler equations; Financial deregulation; Forecast failure; Progressive research strategies; VAR models.
Fulltext: 40.pdf (198.34KB)

Isi artikel

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.

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