Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/63065 
Year of Publication: 
2000
Series/Report no.: 
Memorandum No. 2000,32
Publisher: 
University of Oslo, Department of Economics, 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. 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
JEL: 
C51
C52
C53
E21
E27
Document Type: 
Working Paper

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