Unobserved components in an error-correction model of consumption for Southern European countries

Sarantis, Nick and Stewart, Chris (2001) Unobserved components in an error-correction model of consumption for Southern European countries. Empirical Economics, 26(2), pp. 391-405. ISSN (print) 0377-7332

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Abstract

In this paper we show how the potential misspecification of the consumption function can be ameliorated by approximating any unmodelled long run variation with an unobserved component in the form of a time-varying trend. This methodology is applied to Greek, Portuguese and Spanish consumption functions during the post-second World war period. The empirical evidence suggests that there are many determinants of long-run consumption in these countries, in addition to income and inflation, and these unobserved long-run effects are captured by a nonstationary stochastic component. The long-run elasticity of consumption with regards to the unobserved component is greater than unity in all countries.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics (until November 2012)
Depositing User: Chris Stewart
Date Deposited: 24 Jun 2013 13:03
Last Modified: 29 Nov 2013 12:23
URI: http://eprints.kingston.ac.uk/id/eprint/25525

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