Can Existing Consumption Functions Forecast Consumer Spending in the Late 1980's?

Alan A. Carruth and Andrew Henley ()

Oxford Bulletin of Economics and Statistics, 1990, vol. 52, issue 2, pages 211-22

Abstract: The recent failure to predict the strong growth in consumer spending and decline in the savings ratio in the United Kingdom has prompted a number of economic forecasters to reassess the basis of their consumer expenditure relationships. This paper assesses the failure of the traditional Davidson, Hendry, Srba and Yeo, and Hendry and Ungern-Sternberg specifications and show that a Hendry and Ungern-Sternberg specification applied to the LBS definition of consumer spending forecasts the period 1985-87 remarkably well. The treatment of asset stocks, particularly the inclusion of housing wealth in the definition of personal wealth, and the link with durable spending have an important bearing on this improvement in forecasting performance. Copyright 1990 by Blackwell Publishing Ltd

Date: 1990

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Oxford Bulletin of Economics and Statistics is edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, Gavin Cameron, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple

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