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Title:Progress form forecast failure: The Norwegian consumption function PDF Logo
Authors:Eitrheim, Øyvind
Jansen, Eilev S.
Nymoen, Ragnar
Issue Date:2000
Series/Report no.:Memorandum, Department of Economics, University of Oslo 2000,32
Abstract: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. This constellation of forecast failures is shown to be inconsistent with an underlying Euler equation, a result that also explains why progress took the form of a respecified 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.
Subjects:Consumption functions
equilibrium correction models
Euler equations, financial deregulation
forecast failure
progressive research strategies
VAR models
Document Type:Working Paper
Appears in Collections:Memoranda, Department of Economics, University of Oslo

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