Working Papers, Konjunkturinstitutet - National Institute of Economic Research
Empirical Studies in Consumption, House Prices and the Accuracy of European Growth and Inflation Forecasts
Abstract: BAROT, Bharat, This Ph.D. thesis, Empirical Studies in
Consumption, House Prices and the Accuracy of European Growth and Inflation
Forecasts contains four self-contained chapters:
Chapter I gives a
brief introduction to the topic of the thesis and summarizes the main
Chapter II an aggregated consumption function based on the
life cycle hypothesis using the error correction methodology is estimated
for Sweden. Wealth in its disaggregated form (financial and housing wealth)
is incorporated in the consumption function, along with basic standard
explanatory variables including the unemployment variable. Applying
Hendryís general to specific modelling strategy one final model is deduced.
The study finds that each of the primary components of wealth has an equal
role for consumerís expenditure. In addition the study finds significant
effects from employment and interest rates.
Chapter III a stock-flow
model serves as the theoretical basis for the fundamental determinants of
real estate construction and prices. A housing market model for Sweden has
been estimated on semi-annual data for 1970-1998 by separately modelling
the demand and the supply sides, specified in error correction form. The
supply side is based on Tobinís q-index. The results indicate that even in
a turbulent period, Swedish house prices and housing investment are tracked
quite well with this specification. The importance of the simulations and
their usefulness to Swedish policy makers is discussed. Both ex post and ex
ante forecasts using the model gives reasonable results.
(with Zan Yang), we estimate quarterly dynamic housing demand and
investment supply models for Sweden and the UK for the sample period
1970-1998, using an Error Correction Method (ECM). In order to facilitate
comparisons of results between Sweden and the UK we model both countries
similarly using comparable exogenous variables. The long run income
elasticity for Sweden and the UK are both constrained to be equal to one.
The long run semi-elasticity for interest rate is 2.1 for Sweden and 0.9
for the UK. The speed of adjustment on the demand side is 12% and 23% for
Sweden and the UK, respectively, while on the supply side it is 6% and 48%.
Tobinís q Granger causes housing investment.
Chapter V (with
Lars-Erik ÷ller), evaluates the one-year ahead forecasts by the OECD and by
national institutes of GDP growth and inflation in 13 European countries.
RMSE was large 1.9% for growth and 1.6% for inflation. Six (11) OECD and
ten (7) institute growth forecasts records were significantly better than
an average growth forecast (the current year forecast). All full
record-length inflation forecasts were significantly better than both naive
alternatives. There were no significant differences in accuracy between the
forecasts of the OECD and the institutes. Two forecasts were found to be
biased and one had auto-correlated errors.
148 pages, January 12, 2007
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