IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-11-00699.html
   My bibliography  Save this article

An Alternative Nonlinear Perspective on the Consumption, Income and Wealth Relationship

Author

Listed:
  • Mark J. Holmes

    (University of Waikato)

  • Xin Shen

    (University of Waikato)

Abstract

We provide new evidence on the relationship between consumption expenditure and key drivers namely, income and wealth. Using a testing procedure advocated by Bierens applied to US data, we find evidence that all series are in fact stationary around a nonlinear deterministic trend and are co-trended insofar as they share a common nonlinear deterministic trend. This can be seen in the context of cointegration-based studies that have often found against the existence of a long-run relationship. We also contribute to the ‘great ratios' debate concerning the time series properties of the average propensity to consume.

Suggested Citation

  • Mark J. Holmes & Xin Shen, 2012. "An Alternative Nonlinear Perspective on the Consumption, Income and Wealth Relationship," Economics Bulletin, AccessEcon, vol. 32(1), pages 766-777.
    • Handle: RePEc:ebl:ecbull:eb-11-00699
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P71.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Attfield, Cliff & Temple, Jonathan R.W., 2010. "Balanced growth and the great ratios: New evidence for the US and UK," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 937-956, December.
    2. Camarero, Mariam & Ordonez, Javier, 2006. "Is there a nonlinear co-movement in the EU countries' unemployment?," Economics Letters, Elsevier, vol. 93(2), pages 157-162, November.
    3. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    5. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    6. Bierens, Herman J., 1997. "Nonparametric cointegration analysis," Journal of Econometrics, Elsevier, vol. 77(2), pages 379-404, April.
    7. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," NBER Working Papers 12746, National Bureau of Economic Research, Inc.
    8. Perron, Pierre & Yabu, Tomoyoshi, 2009. "Testing for Shifts in Trend With an Integrated or Stationary Noise Component," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 369-396.
    9. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mark J. HOLMES & Xin SHEN, 2015. "On Wealth Volatility, Asymmetries And The Average Propensity To Consume In The United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 69-78.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shahbaz, Muhammad, 2017. "Current Issues in Time-Series Analysis for the Energy-Growth Nexus; Asymmetries and Nonlinearities Case Study: Pakistan," MPRA Paper 82221, University Library of Munich, Germany, revised 19 Oct 2017.
    2. HOLMES, Mark J, 2008. "Non-Linear Trend Stationarity And Co-Trending In Latin American Real Exchange Rates," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 107-118.
    3. Mark J. Holmes, 2010. "An Alternative Perspective on Tobin's Q and Aggregate Investment Expenditure," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(1), pages 23-28, April.
    4. Singh, Prakash & Pandey, Manoj K., 2009. "Structural break, stability and demand for money in India," MPRA Paper 15425, University Library of Munich, Germany.
    5. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    6. Kim, Dukpa & Oka, Tatsushi & Estrada, Francisco & Perron, Pierre, 2020. "Inference related to common breaks in a multivariate system with joined segmented trends with applications to global and hemispheric temperatures," Journal of Econometrics, Elsevier, vol. 214(1), pages 130-152.
    7. Holmes, Mark J., 2011. "Threshold cointegration and the short-run dynamics of twin deficit behaviour," Research in Economics, Elsevier, vol. 65(3), pages 271-277, September.
    8. Kumar, Saten, 2011. "Financial reforms and money demand: Evidence from 20 developing countries," Economic Systems, Elsevier, vol. 35(3), pages 323-334, September.
    9. Mariam Camarero & Josep Lluís Carrión-i-Silvestre & Cecilio Tamarit, 2024. "Current account determinants in a globalized world," Working Papers 2410, Department of Applied Economics II, Universidad de Valencia.
    10. Boetel, Brenda L. & Liu, Donald J., 2008. "Incorporating Structural Changes in Agricultural and Food Price Analysis: An Application to the U.S. Beef and Pork Sectors," Working Papers 44076, University of Minnesota, The Food Industry Center.
    11. Nélson Leitão Paes & Cássio Da Nóbrega Besarria & Marcelo Eduardo Alves Da Silva, 2018. "Bubbles In The Prices Of Housing? Evidence To Brazil?S Economy," Anais do XLIV Encontro Nacional de Economia [Proceedings of the 44th Brazilian Economics Meeting] 118, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    12. Mariam Camarero & Alejandro Muñoz & Cecilio Tamarit, 2021. "50 Years of Capital Mobility in the Eurozone: Breaking the Feldstein-Horioka Puzzle," Open Economies Review, Springer, vol. 32(5), pages 867-905, November.
    13. Camarero, Mariam & Carrion-i-Silvestre, Josep Lluís & Tamarit, Cecilio, 2013. "Global imbalances and the intertemporal external budget constraint: A multicointegration approach," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5357-5372.
    14. John L. Glascock & Wikrom Prombutr & Ying Zhang & Tingyu Zhou, 2018. "Can Investors Hold More Real Estate? Evidence from Statistical Properties of Listed REIT versus Non-REIT Property Companies in the U.S," The Journal of Real Estate Finance and Economics, Springer, vol. 56(2), pages 274-302, February.
    15. EVRIM MANDACI, Pinar & CAGLI, Efe Caglar, 2016. "Who Drives Whom? Investigating The Relationship Between The Major Stock Markets," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(2), pages 6-24.
    16. Dukpa Kim & Tatsushi Oka & Francisco Estrada & Pierre Perron, 2017. "Inference Related to Common Breaks in a Multivariate System with Joined Segmented Trends with Applications to Global and Hemispheric Temperatures," Boston University - Department of Economics - Working Papers Series WP2017-003, Boston University - Department of Economics.
    17. Chen, Shyh-Wei, 2014. "Testing for fiscal sustainability: New evidence from the G-7 and some European countries," Economic Modelling, Elsevier, vol. 37(C), pages 1-15.
    18. Natalya Ketenci & Vasudeva N. R. Murthy, 2018. "Some determinants of life expectancy in the United States: results from cointegration tests under structural breaks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 508-525, July.
    19. Natalya KETENCİ & Ebru Tomris AYDOĞAN, 2019. "Determinants of Economic Growth in Turkey in the Presence of Structural Breaks," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(42).
    20. Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.

    More about this item

    Keywords

    Consumption; Income; Wealth; Average Propensity to Consume; Nonlinear; Co-trending.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E0 - Macroeconomics and Monetary Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-11-00699. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.