A macroeconometric model for Israel 1962–90: a market equilibrium approach to aggregate demand and supply

This paper reviews the statistical approach typically applied by macroeconomists to investigate the empirical link between aggregate data on household consumption, income, and wealth. In particular, we focus on studies determining whether and how much changes in net worth, such as those generated by the stock-market boom in the U.S. over the latter 1990s, are responsible for subsequent swings in the growth rate of consumer spending. We show how simple economic theory is used to motivate an econometric strategy that consists of two stages of analysis. First, regressions are used to identify trend movements shared by consumption, income, and wealth over the long run, then deviations of these series from their common long-run trends are used to help forecast consumption growth over the short run. Our discussion highlights the various judgments that researchers must make in the course of implementing this empirical approach, and we detail how specific parameter estimates describing the magnitude of the wealth effect on consumption-and even broad conclusions about its existence-are affected by making alternative choices.

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A macroeconometric model for Israel 1962–90: a market equilibrium approach to aggregate demand and supply

Cited by 3 publications

References 10 publications

The canonical least squares estimation of large-scale simultaneous-equations models

The canonical least squares estimation of large-scale simultaneous-equations models

A macroeconometric model with oligopolistic banks: monetary control, inflation and growth in Israel

A Primer on the Economics and Time Series Econometrics of Wealth Effects

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