An asymmetric error correction model of UK consumer spending
Alan Carruth and
Andrew Dickerson ()
Applied Economics, 2003, vol. 35, issue 6, 619-630
This paper augments the Granger and Lee (Journal of Applied Econometrics, 4, 1989) non-symmetric error (equilibrium) correction model to assess the possibility that, in the aggregate, consumers respond differently to different types of disequilibrium error. This idea is illustrated using an Engle-Granger implementation of the Davidson, Hendry, Srba and Yeo (DHSY, Economic Journal, 80, 1978) model. The disequilibrium error is endogenously determined by the long-run, empirical model and a binary dummy variable captures two alternative states, above and below equilibrium spending. Interaction of the dummy variable with key variables in a short-run dynamic model of UK consumer spending augments the dynamics of the DHSY model. Income elasticities, inflation elasticities and speeds of adjustment are all seen to change significantly depending on whether the disequilibrium error is positive or negative, and is suggestive of asymmetric behaviour on the part of consumers. Moreover, the asymmetrically augmented model substantially outperforms a symmetric model with standard error improvements in excess of 50%.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:35:y:2003:i:6:p:619-630
Ordering information: This journal article can be ordered from
Access Statistics for this article
Applied Economics is currently edited by Anita Phillips
More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().