Chapter

Interpreting Econometric Evidence: The Behaviour of Consumers' Expenditure in the United Kingdom

David F. Hendry and James E. H. Davidson

in Econometrics: Alchemy or Science?

Published in print October 2000 | ISBN: 9780198293545
Published online November 2003 | e-ISBN: 9780191596391 | DOI: http://dx.doi.org/10.1093/0198293542.003.0011
 Interpreting Econometric Evidence: The Behaviour of Consumers' Expenditure in the United Kingdom

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Updates and tests whether DHSY and HUS specifications encompass the rational‐expectations, permanent‐income model by eliminating contemporaneous income terms. Both reject that model and lead to an improved specification using only lagged information. The ‘feedback versus feedforward’ debate is confronted as an issue of interpretation of the implications of economic analysis, rather than its use or absence, especially for intertemporal optimization by economic agents.

Keywords: DHSY; encompassing; feedback; feedforward; innovation errors; progressive research strategy; rational expectations; weak exogeneity

Chapter.  6710 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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