Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56178
Authors: 
Eliasson, Ann-Charlotte
Teräsvirta, Timo
Year of Publication: 
2002
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 517
Abstract: 
In this note, we consider the contradiction between the fact that the best fit for the UK consumption data in Davidson et al. (1978) is obtained using an equation with an intercept but without an error correction term, whereas the equation with error correction and without the intercept has better post-sample forecasting properties than the former equation. This contradiction is explained and the two equations reconciled in a nonlinear framework by applying a smooth transition regression model to the data.
Subjects: 
consumption equation
model misspecification testing
nonlinearity
smooth transition regression
JEL: 
C22
E21
Document Type: 
Working Paper

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