Progress from Forecast Failure - the Norwegian Consumption Function

Arbeitspapier

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 and Euler equations. Counter to wideheld beliefs, we show analytically and empirically that this constellation of forecast failures is inconsistent with an underlying Euler equation. Instead, respecification led to a new consumption function 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.

Object Details

• ISBN: 82-7553-167-5
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Arbeidsnotat ; No. 2000/10

Classification and Topics

• Classification: Wirtschaft ; Model Construction and Estimation ; Model Evaluation, Validation, and Selection ; Forecasting Models; Simulation Methods ; Macroeconomics: Consumption; Saving; Wealth ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
• Subject: VAR models ; Euler equations ; consumption functions ; equilibrium correction models ; financial deregulation ; forecast failure ; progressive research strategies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eitrheim, Øyvind ; Jansen, Eilev S. ; Nymoen, Ragnar
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/209783
• Last update: 10.03.2025, 11:42 AM CET