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Modelling New Zealand Consumption Expenditure over the 1990s

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Abstract
This paper presents two models of consumption for the primary purpose of forecasting consumption expenditure growth in New Zealand. The models, which are consistent with a range of consumption functions including the life-cycle and permanent income hypothesis, are error correction models with the long-run equations estimated using both the conventional ordinary least squares procedure as well as the Stock and Watson procedure of leads and lags. Unlike earlier New Zealand studies, actual data on household net wealth, rather than proxies or derived series were used. This allowed the wealth variable to modelled in disaggregated form. Mortgage equity withdrawal by households and funds brought into the economy by immigrants are two novel variables included in the consumption models. Migrant transfers were found to have an influence on short-run consumption growth, but not mortgage equity withdrawal although the latter did contribute to a higher overall model fit. Net non-financial wealth was found to have short-run influence on consumption but not in the long-run.

Suggested Citation

  • Khoon Lek Goh & Richard Downing, 2002. "Modelling New Zealand Consumption Expenditure over the 1990s," Treasury Working Paper Series 02/19, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:02/19
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp02-19.pdf
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    References listed on IDEAS

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    6. Laurence Boone & Nathalie Girouard & Isabelle Wanner, 2001. "Financial Market Liberalisation, Wealth and Consumption," OECD Economics Department Working Papers 308, OECD Publishing.
    7. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
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    9. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
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    Cited by:

    1. Bokana K.G & Kabongo W.N.S, 2018. "Modelling Real Private Consumption Expenditure in South Africa to Test the Absolute Income Hypothesis," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 138-155.
    2. Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
    3. Michael Ryan & Kam Leong Szeto, 2009. "An Introduction to the New Zealand Treasury Model," Treasury Working Paper Series 09/02, New Zealand Treasury.

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    More about this item

    Keywords

    Forecasting; consumption functions; wealth; migrant transfers; mortgage equity withdrawal;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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