Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60627
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dc.contributor.authorKoop, Gary M.en_US
dc.contributor.authorPotter, Simon M.en_US
dc.contributor.authorStrachan, Rodney W.en_US
dc.date.accessioned2012-08-17T14:26:42Z-
dc.date.available2012-08-17T14:26:42Z-
dc.date.issued2005en_US
dc.identifier.urihttp://hdl.handle.net/10419/60627-
dc.description.abstractIn their influential work on the consumption-wealth relationship, Lettau and Ludvigson found that while consumption responds to permanent changes in wealth in the expected manner, most changes in wealth are transitory with no effect on consumption. We investigate the robustness of these results to model uncertainty using Bayesian model averaging. We find that there is model uncertainty with regard to the number of cointegrating vectors, the form of deterministic components, lag length, and whether the cointegrating residuals affect consumption and income directly. Whether this uncertainty has important implications depends on the researcher's attitude toward this economic theory used by Lettau and Ludvigson. If we work with their exact model, our findings are very similar. However, if we work with a broader set of models, we find that the exact magnitude of the role of permanent shocks is difficult to estimate precisely. Thus, although some support exists for the view that the role of shocks is small, we cannot rule out the possibility that they have a substantive effect on consumption.en_US
dc.language.isoengen_US
dc.publisher|aFederal Reserve Bank of New York |cNew York, NYen_US
dc.relation.ispartofseries|aStaff Report, Federal Reserve Bank of New York |x202en_US
dc.subject.jelC11en_US
dc.subject.jelE21en_US
dc.subject.ddc330en_US
dc.subject.keywordwealth effect, vector error correction model, Bayesian model averaging, cointegration, variance decompositionen_US
dc.subject.stwGesamtwirtschaftlicher Konsumen_US
dc.subject.stwVermögenseffekten_US
dc.subject.stwBayes-Statistiken_US
dc.subject.stwKointegrationen_US
dc.subject.stwFehlerkorrekturmodellen_US
dc.subject.stwVarianzanalyseen_US
dc.titleReexamining the consumption-wealth relationship: The role of model uncertaintyen_US
dc.typeWorking Paperen_US
dc.identifier.ppn481123490en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US

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