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Macroeconometric Studies of Private Consumption, Government Debt and Real Exchange Rates

Hansson, Jesper LU (2001) In Lund Economic Studies 94.
Abstract (Swedish)
Popular Abstract in Swedish

Avhandlingen består av fem fristående uppsatser som utnyttjar tidsserieanalys för studerande av några olika makroekonomiska frågor. I kapitel två, tre och fyra används s.k. vektorautoregressiva (VAR) modeller för att studera privat konsumtionsbeteende i Sverige. Enligt den permanenta inkomst hypotesen väljer individerna sin konsumtion med hänsyn till sin långsiktiga eller permanenta nivå på sin inkomst. En strikt tolkning av denna hypotes förkastas av data, men det finns starkt stöd för att konsumenterna beaktar framtida inkomster när de väljer nivå på dagens konsumtion. Kapitel fem studerar uthålligheten i den statliga skuldsättningen genom att utföra ett s.k. enhetsrotstest på statsskulden som... (More)
Popular Abstract in Swedish

Avhandlingen består av fem fristående uppsatser som utnyttjar tidsserieanalys för studerande av några olika makroekonomiska frågor. I kapitel två, tre och fyra används s.k. vektorautoregressiva (VAR) modeller för att studera privat konsumtionsbeteende i Sverige. Enligt den permanenta inkomst hypotesen väljer individerna sin konsumtion med hänsyn till sin långsiktiga eller permanenta nivå på sin inkomst. En strikt tolkning av denna hypotes förkastas av data, men det finns starkt stöd för att konsumenterna beaktar framtida inkomster när de väljer nivå på dagens konsumtion. Kapitel fem studerar uthålligheten i den statliga skuldsättningen genom att utföra ett s.k. enhetsrotstest på statsskulden som andel av BNP. Detta test utförs med data för sex länder under perioden 1885-1996. Resultaten indikerar att om man tar hänsyn till tillfälliga utgifter, t.ex. under krig, är statskuldkvoten stabil. Kapitel sex undersöker beteendet hos den reala växelkursen, d.v.s. nominell växelkurs justerad för förändringar i de relativa prisnivåerna, mellan de viktigaste valutorna under perioden efter 1972. Tidigare studier finner ofta, tvärtemot teoretiska förutsägelser, att den reala växelkursen inte är stationär. Baserat på prognosförmågan, är slutsatsen att en stationär s.k. regimskiftesmodell beskriver den reala växelkursen bättre än två konkurrerande icke-stationära modeller. (Less)
Abstract
Advances in time series analysis during the last two decades have stimulated research in a number of areas in macroeconomics. This thesis is a compilation of five essays using cointegrated vector autoregressive (VAR) models, unit root tests and regime switching models to investigate the behavior of private consumption, public debt and the real exchange rate.



Chapter two explores the empirical evidence of the rational expectations permanent income hypothesis (PIH) in Sweden using a bivariate VAR model of labor income changes and saving. The data firmly reject the PIH and an extension of the model where a fraction of the consumers are supposed to use a rule of thumb: consume all the disposable income. The deviation from... (More)
Advances in time series analysis during the last two decades have stimulated research in a number of areas in macroeconomics. This thesis is a compilation of five essays using cointegrated vector autoregressive (VAR) models, unit root tests and regime switching models to investigate the behavior of private consumption, public debt and the real exchange rate.



Chapter two explores the empirical evidence of the rational expectations permanent income hypothesis (PIH) in Sweden using a bivariate VAR model of labor income changes and saving. The data firmly reject the PIH and an extension of the model where a fraction of the consumers are supposed to use a rule of thumb: consume all the disposable income. The deviation from the behavior predicted by the PIH is, however, numerically small. Increased saving predicts a declining labor income and saving moves closely with “theoretical” saving. In order to explore the reason for the statistical rejection, a simple model of habits in consumption is introduced. The restrictions implied by this model of consumer behavior are generally not rejected.



Chapter three is a short note on how to calculate permanent and transitory innovations in a vector time series from a cointegrated VAR model. This method is used in chapter four, where a structural common trends model of private consumption and disposable income growth is estimated and used to analyze the Swedish private consumption behavior. The conclusion is that Swedish consumers are forward-looking, adjusting consumption expenditures to the long-run level of disposable income very fast.



Chapter five provides international evidence of the sustainability of the public debt. We test if the public debt-to-GDP ratio is stationary in six countries over the period 1885-1996. Standard unit root tests suggest that this is not the case, but when controlling for temporary government expenditures, e.g. military expenditures during wars, and temporary shortfall of taxes due to temporary low GDP, we find that the debt-to-GDP ratio is stationary in four out of the six countries. If we, furthermore, allow for a structural break in 1973, the debt-to-GDP ratio is stationary in all six countries.



Chapter six investigates the behavior of the real exchange rate. We suggest that the real exchange rate between the major currencies in the post-Bretton Woods period can be described by a stationary, two state Markov switching AR (1) model. Based on the out of sample forecast performance, we find that this model out-performs two competing models where the exchange rate is non-stationary. (Less)
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author
opponent
  • Professor Hutchison, Michael M, University of California, Santa Cruz
organization
publishing date
type
Thesis
publication status
published
subject
keywords
econometrics, Economics, Real exchange rate, Public debt, Structural VAR model, Cointegration, Habits, Permanent income hypothesis (PIH), economic theory, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
in
Lund Economic Studies
volume
94
pages
132 pages
publisher
Department of Economics, Lund Universtiy
defense location
Holger Crafoords Ekonomicentrum III, room EC3:211
defense date
2001-03-23 10:15
ISSN
0460-0029
language
English
LU publication?
yes
id
8e04751f-81dd-460c-9e76-486f62347eac (old id 41328)
date added to LUP
2007-07-31 16:02:48
date last changed
2018-05-29 09:18:20
@phdthesis{8e04751f-81dd-460c-9e76-486f62347eac,
  abstract     = {Advances in time series analysis during the last two decades have stimulated research in a number of areas in macroeconomics. This thesis is a compilation of five essays using cointegrated vector autoregressive (VAR) models, unit root tests and regime switching models to investigate the behavior of private consumption, public debt and the real exchange rate.<br/><br>
<br/><br>
Chapter two explores the empirical evidence of the rational expectations permanent income hypothesis (PIH) in Sweden using a bivariate VAR model of labor income changes and saving. The data firmly reject the PIH and an extension of the model where a fraction of the consumers are supposed to use a rule of thumb: consume all the disposable income. The deviation from the behavior predicted by the PIH is, however, numerically small. Increased saving predicts a declining labor income and saving moves closely with “theoretical” saving. In order to explore the reason for the statistical rejection, a simple model of habits in consumption is introduced. The restrictions implied by this model of consumer behavior are generally not rejected.<br/><br>
<br/><br>
Chapter three is a short note on how to calculate permanent and transitory innovations in a vector time series from a cointegrated VAR model. This method is used in chapter four, where a structural common trends model of private consumption and disposable income growth is estimated and used to analyze the Swedish private consumption behavior. The conclusion is that Swedish consumers are forward-looking, adjusting consumption expenditures to the long-run level of disposable income very fast.<br/><br>
<br/><br>
Chapter five provides international evidence of the sustainability of the public debt. We test if the public debt-to-GDP ratio is stationary in six countries over the period 1885-1996. Standard unit root tests suggest that this is not the case, but when controlling for temporary government expenditures, e.g. military expenditures during wars, and temporary shortfall of taxes due to temporary low GDP, we find that the debt-to-GDP ratio is stationary in four out of the six countries. If we, furthermore, allow for a structural break in 1973, the debt-to-GDP ratio is stationary in all six countries.<br/><br>
<br/><br>
Chapter six investigates the behavior of the real exchange rate. We suggest that the real exchange rate between the major currencies in the post-Bretton Woods period can be described by a stationary, two state Markov switching AR (1) model. Based on the out of sample forecast performance, we find that this model out-performs two competing models where the exchange rate is non-stationary.},
  author       = {Hansson, Jesper},
  issn         = {0460-0029},
  keyword      = {econometrics,Economics,Real exchange rate,Public debt,Structural VAR model,Cointegration,Habits,Permanent income hypothesis (PIH),economic theory,economic systems,economic policy,Nationalekonomi,ekonometri,ekonomisk teori,ekonomiska system,ekonomisk politik},
  language     = {eng},
  pages        = {132},
  publisher    = {Department of Economics, Lund Universtiy},
  school       = {Lund University},
  series       = {Lund Economic Studies},
  title        = {Macroeconometric Studies of Private Consumption, Government Debt and Real Exchange Rates},
  volume       = {94},
  year         = {2001},
}