Appendix 3 Consumption equation
log(COND)=C0101+C0102*log(RINCOME)+C0103*log(RWEALTH)-
RLPCON+C104*DUMMY
The dependent variable used in the regression is the logarithm of real consumption expenditure (log(COND)+RLPCON).
| Sample period | 87:2-01:4 | 87:2-96:4 | 87:2-01:4 | 87:2-01:4 |
|---|---|---|---|---|
| C0103=(1-C0102) | C0103=(1-C0102) | C0103=(1-C0102) | C0102=1 , C0103=0 | |
| log(RINCOME) |
0.982 (0.0519) |
0.563 (0.0990) |
0.665 (0.0844) |
1 (na) |
| log(RWEALTH) | 1-C401 | 1-C401 | ||
| DUMMY1 |
0.0614 (0.01381) |
|||
| Constant |
-0.004 (0.1586) |
-1.216 (0.3070) |
-0.993 (0.2616) |
0.0503 (0.0040) |
| Cointegration tests | ||||
| Dickey-Fuller | ** | ** | ||
| Augmented Dickey-Fuller | ** | ** | ** |
1 Note that the variable takes the value 1 if t > 1996:4 and 0 otherwise. This dummy variable is to capture a structural break in the consumption behaviour such as the effects of greater access to credit.
| Lag length p | ADF test statistic | |
|---|---|---|
| log(COND)+RLPCON | 4 | -2.605 |
| log(RINCOME) | 2 | -2.439 |
| log(RWEALTH) | 0 | -2.266 |
| Lag length p | ADF test statistic | |
|---|---|---|
| log(COND)+RLPCON | 2 | -2.996** |
| ln(RINCOME) | 0 | -9.800* |
| ln(RWEALTH) | 1 | -2.997** |
* significantly different from 0 at 1% level.
** significantly different from 0 at 5% level.
The critical values are based on MacKinnon[8] critical values for unit root tests.
Notes
- [8]See Mackinnon, J. G. (1991) “Critical values for cointegration tests,” Chapter 13 in R. F. Engle and C. W. J. Granger (eds), Long-run economic relationships: readings in cointegration, Oxford University Press.
