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Modelling New Zealand Consumption Expenditure Over the 1990s - WP 02/19

Publication Details

  • Modelling New Zealand Consumption Expenditure Over the 1990s
  • Published: Sep 2002
  • Status: Current
  • Authors: Downing, Richard; Goh, Khoon Lek
  • JEL Classification: D12; D91; E21; E27
  • Hard copy: Available in HTML and PDF formats only.
 

Modelling New Zealand Consumption Expenditure over the 1990s

New Zealand Treasury Working Paper 02/19

Published September 2002

Authors: Khoon Lek Goh and Richard Downing

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.

Contents

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Abstract

Table of Contents

List of Tables

List of Figures

1 Introduction

2 Modelling Approach

3 Empirical Results

4 Conclusions

Appendix A: Data definitions and sources

Appendix B: Diagnostic tests

References

twp02-19.pdf (433 KB) pp. 1–24

List of Tables

List of Figures

Acknowledgements

We wish to thank Kam Szeto, Paul Gardiner, Nathan McLellan and Mardi Dungey for their insightful comments and suggestions during the preparation of this paper. Special thanks to Kam Szeto for encouraging us to expand our earlier internal work on consumption forecasting into a working paper.

Disclaimer

The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

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