Scientific Monographs, Bank of Finland
No E:22/2001:
Studies in Time Series Analysis of Consumption, Asset Prices and Forecasting
Kari Takala ()
Abstract: This collection of seven papers deals with three different
areas of econometric applications: consumption, asset prices, and
forecasting. The papers apply techniques related to the analysis of unit
roots and cointegration methods.
The first paper deals with consumption
theories and formulates an error-correction forecasting model for
consumption. A single cointegration relationship is found between
consumption, income and net wealth, which is in line with the permanent
income hypothesis. The second paper studies the excess sensitivity of
consumption to current disposable income. Estimating the coefficient with
time-varying techniques, we notice a decline in the coefficient during the
period of financial deregulation toward the end of the 1980s and a rise
during the recession. Third paper takes a closer look at how useful
consumer barometer variables can be in forecasting variables such as
consumption and inflation.
The first paper on asset prices, is based on
the theory of cointegration between house and stock prices, which asserts
that real after-tax risk-adjusted returns on assets should coincide in the
long run. This paper presents a model for house prices that uses stock
prices as a leading indicator to improve the forecasting of housing prices.
Another paper on asset prices considers cointegration between house prices
and inflation, and finds eg that house prices adjust to consumer prices in
the long run and that no excess real appreciation, apart from rental
income, is derived from house ownership.
The two last papers deal with
bankruptcy forecasting and testing for nonlinearities and chaos. It is
asserted that bankruptcies can be interpreted as error-correction between
supply and demand. Many tests have been developed to study the presence of
nonlinearities in economic series. The results of testing unambiguously
support that there are strong nonlinearities in economic data, but the
evidence for chaos is weak.
Keywords: cointegration; asset prices; forecasting; nonlinearity; bankruptcy; (follow links to similar papers)
303 pages, December 29, 2001
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