Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209783 
Year of Publication: 
2000
Series/Report no.: 
Arbeidsnotat No. 2000/10
Publisher: 
Norges Bank, Oslo
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. 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.
Subjects: 
VAR models
Euler equations
consumption functions
equilibrium correction models
financial deregulation
forecast failure
progressive research strategies
JEL: 
C51
C52
C53
E21
E27
Persistent Identifier of the first edition: 
ISBN: 
82-7553-167-5
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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