UNSPECIFIED. (2003) An asymmetric error correction model of UK consumer spending. APPLIED ECONOMICS, 35 (6). pp. 619-630. ISSN 0003-6846

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Abstract

This paper augments the Granger and Lee ( Journal of Applied Econometrics, 4,19 89) non-symmetric error ( equilibrium) correction model to assess the possibility that, in the aggregate, consumers respond differently to different types of disequilibrium error. This idea is illustrated using an Engle-Granger implementation of the Davidson, Hendry, Srba and Yeo (DHSY, Economic Journal, 80,19 78) model. The disequilibrium error is endogenously determined by the long-run, empirical model and a binary dummy variable captures two alternative states, above and below equilibrium spending. Interaction of the dummy variable with key variables in a short-run dynamic model of UK consumer spending augments the dynamics of the DHSY model. Income elasticities, inflation elasticities and speeds of adjustment are all seen to change significantly depending on whether the disequilibrium error is positive or negative, and is suggestive of asymmetric behaviour on the part of consumers. Moreover, the asymmetrically augmented model substantially outperforms a symmetric model with standard error improvements in excess of 50%.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	APPLIED ECONOMICS
Publisher:	ROUTLEDGE TAYLOR & FRANCIS LTD
ISSN:	0003-6846
Official Date:	April 2003
Volume:	35
Number:	6
Number of Pages:	12
Page Range:	pp. 619-630
Identification Number:	10.1080/0003684022000035782
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/9746

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