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Intercountry Evidence on the Performance of the Simple Error Correction Mechanism Model of Consumption

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  • Baltagi, Badi H
  • Mokhtari, Manouchehr

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 1951-82. This is done for each country separately as well as for the pooled data. The basic results of this study are the following: (1) 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. (2) 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.

Suggested Citation

  • Baltagi, Badi H & Mokhtari, Manouchehr, 1990. "Intercountry Evidence on the Performance of the Simple Error Correction Mechanism Model of Consumption," Empirical Economics, Springer, vol. 15(4), pages 303-314.
    • Handle: RePEc:spr:empeco:v:15:y:1990:i:4:p:303-14
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    References listed on IDEAS

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    1. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    2. David F. Hendry, 2013. "Econometric Modelling: The ‘Consumption Function’ In Retrospect," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(5), pages 495-522, November.
    3. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. repec:bla:revinw:v:17:y:1971:i:4:p:341-52 is not listed on IDEAS
    6. Grayham E. Mizon & David F. Hendry, 1980. "An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 21-45.
    7. Singh, Balvir & Drost, Helmar, 1971. "An Alternative Econometric Approach to the Permanent Income Hypothesis: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 326-334, November.
    8. Koskela, Erkki & Viren, Matti, 1984. "Testing the stability of the hall consumption function specification," Economics Letters, Elsevier, vol. 14(2-3), pages 289-293.
    9. Fuller, Wayne A. & Battese, George E., 1974. "Estimation of linear models with crossed-error structure," Journal of Econometrics, Elsevier, vol. 2(1), pages 67-78, May.
    10. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    11. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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