Abstract
This paper estimates a simple error correction mechanism (SECM) model of consumption a la Davidson, Hendry, Srba and Yeo (1978) for 13 OECD countries over the period 1951–1982. This is done for each country separately as well as for the pooled data. The basic results of this study are the following: (i) The SECM model appears as an adequate approximation to the data generating process on an individual country basis as well as in a pooled context. (ii) The pooled within estimator indicates a large and significant disequilibrium term while the between estimator indicates a small and insignificant disequilibrium term. This is consistent with the belief that the within estimator tend to yield short-run estimates while the between estimator tend to yield long-run estimates.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Balestra P, Nerlove M (1966) Pooling cross-section and time-series data in the estimation of a dynamic model: The demand for natural gas. Econometrica 34: 585–612
Baltagi B H, Griffin J M (1984) Short and long run effects in pooled models. International Economic Review 25: 631–645
Breusch TS (1978) Testing for autocorrelation in dynamic linear models. Australian Economic Papers 17: 334–355
Davidson J E H, Hendry D F, Srba F, Yeo S (1978) Econometric modelling of the aggregate time-series relationship between consumers' expenditure and income in the United Kingdom. Economic Journal 88: 661–692
Engle R F (1982) Autoregressive conditional heteroskedasticity with estimates of variance of United Kingdom inflations. Econometrica 50: 987–1008
Engle R F, Granger CWJ (1987) Co-Integration and error correction: representation, estimation, and testing. Econometrica 55: 251–276
Fuller W A, Battese GE (1974) Estimation of linear models with crossed error structure. Journal of Econometrics 2: 67–78
Godfrey L G (1978) Testing against general autoregressive and moving average error models when the regressors include lagged dependent variables. Econometrica 46: 1293–1302
Harvey A C (1981) The econometric analysis of time series. Philip Allan, London
Hendry D F (1979) Predictive failure and econometric modelling in macroeconomics: The transactions demand for money. In: P Ormerod (ed) Modelling the Economy, Heinemann, London
Hendry D F (1983) Econometric modelling: The consumption function in retrospect. Scottish Journal of Political Economy 30: 193–220
Hsiao C (1986) Analysis of panel data. Cambridge University Press, Cambridge
Koskela E, Viren M (1984) Testing the stability of the Hall consumption function specification. Economic Letters 14: 289–293
Kravis I, Heston A, Summers R (1982) World product and income: International comparisons of real gross product, phase III. John Hopkins University Press, Baltimore
Mayer T (1972) Permanent income, wealth and consumption: A critique of the permanent income theory, The life-cycle hypothesis, and related theories. University of California Press, Berkeley
Mizon G E, Hendry D F, (1980) An empirical application and monte carlo analysis of tests of dynamic specification. Review of Economic Studies 47: 21–45
Modigliani F (1975) The life cycle hypothesis of saving twenty years later. In: M Parkin, AR Nobay (eds) Contemporary Issues in Economics, Manchester University Press, Manchester
Mokhtari M (1986) Econometric modelling of the aggregate time-series relationship between consumption expenditure and income: An international analysis. Department of Economic, University of Houston, Houston, TX
Mokthari M (1988) The error correction and random walk modells of consumers' expenditure: A multicountry Analysis. University of Maryland, College Park, MD
Pagan A R, Hall A D (1983) Diagnostic tests as residuals analysis. Econometric Reviews 2: 159–218
Singh B, Kumar R C (1971) The relative income hypothesis — A cross country analysis. Review of Income and Wealth 17: 341–352
Singh B, Drost H (1971) An alternative econometric approach to the permanent income hypothesis — An international comparison. Review of Economics and Statistics 53: 326–334
Swamy P A V B (1971) Statistical inference in random coefficient regression models, Springer-Verlag, New York
Yang C Y (1964) An international comparison of consumption functions. Review of Economics and Statistics 46: 279 286
Author information
Authors and Affiliations
Additional information
The authors would like to thank Baldev Raj and an anonymous referee for helpful comments and suggestions. Mokhtari's research was supported by a grant from UHD/ORG.
Rights and permissions
About this article
Cite this article
Baltagi, B.H., Mokhtari, M. Intercountry evidence on the performance of the simple error correction mechanism model of consumption. Empirical Economics 15, 303–314 (1990). https://doi.org/10.1007/BF02307285
Received:
Issue Date:
DOI: https://doi.org/10.1007/BF02307285