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Empirical Economics

Erschienen in:

12.07.2019

Thick modelling income and wealth effects: a forecast application to euro area private consumption

verfasst von: Gabe Jacob de Bondt, Arne Gieseck, Zivile Zekaite

Erschienen in: Empirical Economics | Ausgabe 1/2020

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Abstract

This study develops a thick modelling tool for real private consumption, with a conditional forecasting application to the euro area. Several equations from thousands of error correction models, always including labour income, non-labour income, financial wealth and non-financial wealth as determinants, are selected from predetermined in-sample and out-of-sample criteria. Our thick model estimates show that income effects differ between labour and non-labour income and that their (relative) importance varies over time. This implies that labour and non-labour income should both be on the radar of policy makers and modellers.

Vorheriger Artikel Appropriate monetary policy and forecast disagreement at the FOMC

Nächster Artikel Aggregate density forecasting from disaggregate components using Bayesian VARs

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An extension to four variables results in selecting from around a quarter of a million of equations. These results are available upon request and do not materially change the results on the basis of three non-income/wealth determinants as reported here.

We thank an anonymous referee for pointing out the possibility of nonlinear effects of consumer confidence as argued in Bruno (2014). In order to allow for nonlinearity, we ran the exercise also including additional equations with a squared measure of uncertainty. Nevertheless, we found that the baseline results reported in this paper do not change in a meaningful way. After applying all the criteria only one additional equation containing a nonlinear term of uncertainty measure is selected compared to the baseline results.

An alternative estimation procedure would be to follow dynamic OLS (DOLS) (Saikkonen 1991; Stock and Watson 1993). GMM has, however, the advantage that the model can be estimated in one step and therefore generating a wide range of estimated short-run coefficients as well as long-run coefficients rather than only one long-run coefficient as is the case for DOLS.

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Titel: Thick modelling income and wealth effects: a forecast application to euro area private consumption
verfasst von: Gabe Jacob de Bondt
Arne Gieseck
Zivile Zekaite
Publikationsdatum: 12.07.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 1/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01738-w

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