Do disaggregated CPI data improve the accuracy of inflation forecasts?

In this paper, we evaluate the role of using consumer price index (CPI) disaggregated data to improve the accuracy of inflation forecasts. Our forecasting approach is based on extracting the factors from the subcomponents of the CPI at the highest degree of disaggregation. The data set contains 54 macroeconomic series and 243 CPI subcomponents from 1992 to 2009 for Mexico. We find that the factor models that include disaggregated data outperform the benchmark autoregressive model and the factor models containing alternative groups of macroeconomic variables. We provide evidence that using disaggregated price data improves forecasting performance. The forecasts of the factor models that extract the information from the CPI disaggregated data are as accurate as the forecasts from the survey of experts.     

Quantitative versus qualitative measures of price expectations: The evidence from Australian consumer surveys

This letter analyses price expectations data derived from the quarterly Australian Survey of Consumers. The survey asks both qualitative and quantitative price expectations questions. The information loss arising from using the more readily available qualitative based series as approximations to the quantitative series is assessed. Qualitatively based series are found to greatly exaggerate changes in consumer price expectations in times of high inflation.     

Consumer confidence and consumption forecast: a non-parametric approach

The consumer confidence index is a highly observed indicator among short-term analysts and news reporters and it is generally considered to convey some useful information about the short-term evolution of consumer expenditure. However, its usefulness in forecasting households consumption is sometimes questioned in empirical studies. A possible weakness can be due to the use of a linear functional form to model the relation between these two variables. Here, in order to overcome this issue, a non-parametric model is used, so that overly restrictive assumptions about the functional form can be avoided.     

The import of hospital rate setting programs on hospital and health care expenditures, 1975–85

To reduce hospital expenditures, many jurisdictions now regulate hospital rates. Prior theoretical work has demonstrated, however, that the effect of rate regulation on total expenditures is a priori unclear. Empirical research has found that hospital rate setting programs have reduced expenditures per diem and per admission, but not necessarily hospital expenditures or total health care expenditure per capita. This study extends this empirical research. It employs pooled cross section-time series data on state level expenditure, regulatory, and demographic variables obrserved annually for 1975–85. The analysis provides little evidence that hospital rate setting programs have reduced hospital expenditures. Some rate setting programs actually are positively and significantly related to hospital expenditures. Overall, this study does not suggest that regulatory programs will reduce hospital expenditures.     

THE IMPACT OF GOVERNMENT DEFICITS ON PERSONAL AND NATIONAL SAVING RATES

This study provides fresh evidence on the responsiveness of private consumption and, by implication, saving to government deficits. It focuses on consumption and saving from 1981 to 1989, a period during which the personal saving rate was characterized as surprisingly unresponsive to high federal budget deficits. The authors attempt to determine whether this experience is consistent with previous behavior. They also test whether this experience refutes the Ricardian Equivalence Proposition (REP), under which consumers incorporate the government's intertemporal budget constraint into their own.
The analysis involves estimating two consumer expenditure functions based on two measures of current income capable not only of explaining expenditure behavior during the postwar period but also of successfully forecasting out of sample into the 1981–1989 period. Only one model is consistent with the REP, but neither model indicates that high government deficits caused the drop in the national saving rate experienced during the 1980s. Both models predict similar short-run responses to shifts in the government deficit. The responses depend crucially on the mix of tax and expenditure changes used to achieve the deficit shift. Both consumption and saving are more responsive to changes in government expenditures on goods and services than they are to changes in taxes.     

Consumer confidence and consumption expenditure in Indonesia

We estimate several competing regressions and find that confidence predicts consumption expenditure in Indonesia. Our estimations employ data on two measures of confidence, namely consumer and business confidence indexes, consumption and three standard predictors of consumption, namely labour income, stock price, and interest rate. We show that there are economic and statistical gains from consumption growth frameworks that account for consumer and business sentiments. Specifically, we show that policymakers can improve their forecast accuracy by between 4% and 13% by incorporating consumer and business sentiments into their forecasting frameworks.     

THE FORMATION OF INFLATION PERCEPTIONS: SOME EMPIRICAL FACTS FOR EUROPEAN COUNTRIES

This paper investigates how households form their perceptions of consumer price inflation. Using data from the harmonized European Union consumer survey, we find that inflation perceptions are inefficient and highly heterogeneous, yet contemporaneously related to the actual rate of inflation. Consequently, we estimate how often households update their beliefs using Carroll's (2003) epidemiological model. Our results indicate that inflation perceptions are generally less responsive to new information than expectations. Unlike studies on expectations, we cannot confirm that a constant fraction of the population updates information every month. Also, the cross‐sectional heterogeneity of perceptions is higher than implied by infrequent updating alone.     

Further analysis of cross-country comparison of consumer expenditure patterns

The present paper analyzes consumer expenditure pattern within the framework of classical demand theory. We compare the linear expenditure system (LES) with two other demand systems based on utility-maximizing behavior: a generalized linear expenditure system (GLES) and the indirect addilog expenditure system (IAES). Our data consists of annual time series, 1950–1965, for 11 OECD member countries.The main results of this paper are that consumer expenditure patterns can be explained by emperical demand models based on utility-maximizing behavior. Furthermore the GLES model, while not without its share of weaknesses, seems to be more attractive than the IAES and LES models.     

Nonlinearity in medical expenditures: a new semiparametric approach

Research in empirical health economics has found that the relationship between medical expenditures and age, income and other variables can be highly nonlinear. Moreover, men and women can have quite different medical expenditure patterns due to their differences in life expectancy. Thus it may be difficult to find an appropriate parametric model to capture the highly complicated nonlinearity in medical expenditures, and introducing a simple gender dummy variable in a parametric model may not reveal all the medical expenditure differences between men and women. This study takes a semiparametric approach. In particular, an additive partially linear specification is employed to study the relationship between medical expenditures and age, income, gender and other individual characteristics. Using data from the National Medical Expenditure Survey, the results indicate that the semiparametric approach taken in this study is very promising. They confirm that medical expenditures are nonlinear in income and age, and that men and women have quite different medical expenditure patterns.     

Combining Household Income and Expenditure Data in Policy Simulations

The analysis of the distributional impact of fiscal policy proposals often requires information on household expenditures and incomes. It is unusual to have one data source with information on both and this problem is generally overcome with statistical matching of independent data sources. In this paper Grade Correspondence Analysis (GCA) is investigated as a tool to improve the matching process. GCA draws out the relationships between the common variables to enable the sample to be partitioned into more homogeneous groups, prior to matching. An evaluation is conducted using the UK Family Expenditure Survey, which is unusual in containing both income and expenditure at a detailed level of disaggregation. Imputed expenditures are compared with actual expenditures through the use of indirect tax simulations. The most successful methods are then employed to enhance data from the Family Resources Survey and the synthetic dataset is used as a microsimulation model database.     

VALUING THE SERVICES OF CONSUMER DURABLES

Although consumer durables are treated as nondurables in most economic accounts, economists have long recognized that they could be treated as capital. If an estimate of the value of the services of consumer durables was available, it could be included in personal consumption expenditures and purchases of the durables treated as a form of investment. Such treatment would give a better picture of changes in a nation's economic welfare over time and make international comparisons more meaningful.
This article reviews the economic literature on how the services of consumer durables can be valued. It examines six alternative measures: the (1) user cost; (2) capital recovery; (3) opportunity cost; (4) market rental value; (5) cost of a substitute; and (6) cash-equivalent value measures. The first three are based on the summation of the costs of the inputs used to produce the services, although only the first two are consistent with the principle that the purchase price of a durable equals the discounted present value of its expected future benefits. The fourth and fifth measures are based on the prices of marketed services while the sixth is derived from the consumer's demand function for the good's services. The article also discusses six major issues in implementing these measures: (1) imputing a rate of return to capital; (2) measuring declines in market value (depreciation and capital gains); (3) accounting for operating expenditures; (4) adjusting for capacity utilization; (5) deflating service values; and (6) defining consumer durables.     

Modeling Expectation Formation Involving Several Sources of Information

Abstract. Experimental studies of expectation formation of subjects are predominantly limited to the prediction of one single time series despite the practical relevance of expectations in situations with multiple sources of information. In this paper, we report on an experiment in which subjects are given time series (indicators) as additional information for the judgemental forecast of a stationary time series. The quality and the number of these indicators are varied in three versions of a forecasting experiment. We explore the effects on forecasting accuracy and we test the average forecasts of the subjects for consistency with the rational expectations hypothesis. A simple heuristic is presented that explains the average forecasting behavior better than the rational expectations if indicators are presented to the subjects. It is demonstrated by a simulation study that this result is representative for the considered stationary stochastic processes.     

中国宏观经济总量的实时预报与短期预测——基于混频数据预测模型的实证研究

季度GDP的走势与波动不仅会影响政府的财政收支、企业的盈利和财务状况,甚至还会影响家庭和个人的收入与支出,是宏观经济总量预报、预测与分析的重中之重。传统的宏观经济总量预测模型是基于同频数据进行的,高频和超高频数据必需处理为低频数据,这不仅忽略了高频数据信息的变化,还影响了模型预报和预测的及时性,降低了模型的预测精度。本文将混合数据抽样模型(MIDAS)用于中国季度GDP的预报和预测,实证研究表明,出口是造成我国金融危机时期经济增长减速的主要因素,MIDAS模型在中国宏观经济总量的短期预测方面具有精确性的比较优势,在实时预报方面具有显著的可行性和时效性。     

Entry in contests with incomplete information: Theory and experiments

This paper studies entry decisions in contests with private values. Potential contestants observe their value and the common opportunity cost of entry, and make entry decisions simultaneously. Theory predicts that whether or not contestants are informed of the number of entrants prior to choosing their expenditures has no effect on entry or aggregate expenditures. We test these assertions in our experiments. We find substantial over-entry in both information structures. However, entry is higher when contestants are informed. Since expenditures do not, on average, differ across information structures, aggregate expenditure is also higher when contestants are informed. Contestants earn on average less than the opportunity cost of entry.     

Forecasting UK international trade: A general equilibrium approach

Monthly retail unit sales of clothes washers and dryers in eastern Washington state were regressed on average employment during the current and preceding two months, the average advertised price of these appliances relative to the Consumer Price Index, the expected change in consumer stocks of such applicances for each year on the basis of a hypothetical rate of accumulation, and the unit volume of newspaper advertising in order to determine the viablity of alternative models for analysing and forecasting monthly sales in a localized retail market during the periods of growth, maturity, and decline in market demand.

Employment and advertising, the two most useful variables in the functions tested, were able to account for 70–75 per cent of the monthly sales variance for automatic washers and dryers. Employment elasticity coefficients, though not linearly related to income elasticity coefficients for these products, appear to be a useful measure of purchasing power for localized demand and forecasting functions. The average advertising elasticity for the products studied was 0.095, which was approximately equal to advertising expenditures as a ratio of the gross margin of furniture and house furnishings corporations and kitchen appliance departments of department stores for the period studied, in keeping with the Rasmussen hypothesis. Correction of the models for the presence of autocorrelation altered the explanatory power of some of the variables substantially and resulted in regression coefficients for some variables that were more nearly consistent with theoretical expectations.     

Unit root and cointegration tests: timeseries versus panel estimates for international health expenditure models

Classical regression estimates of the determinants of the OECD health expenditures are useful for policy formulation and evaluation. However, if the underlying timeseries data are not collectively stationary in levels, the estimated parameters are faulty and can misguide health policy. Until very recently, the crucial stationarity tests were ignored in a large number of studies on international comparisons. Stationarity (ADF, Phillips-Perron, IPS heterogeneous panel) and cointegration (Engle-Granger bivariate, Johansen's multivariate) tests are conducted here using 1960–1997 health expenditures data (1998 CD ROM) of 19 OECD countries. It is found that extending the time series data length affects the order of integration and number of cointegrating vectors. However, it is arguable whether the order of integration decreases or increases as more observations are added for testing. The failure of the Johansen and Engle-Granger cointegration tests for most of the OECD countries cautions policy makers against reliance on earlier research findings that were based on unstable relationships among variables in the regression models. (This is not the case for the UK, Greece and Ireland; policy implications have been derived for the UK.) Consequently, data calibrated in growth rates may be more appropriate for investigating the long run relationships collectively in a panel of OECD health expenditure model specifications.     

A forecasting model for food and other expenditures

An econometric model consisting of an inverse demand system and a set of lagged supply response relationships; for major categories of US personal consumption expenditures is formulated. The model is capable of sequentially forecasting per capita personal consumption expenditures and their expenditure shares in the long run.     

Pensions for Singles and Couples

Retirement policies often seek to set pensions at levels that enable single and married pensioners to have the same standard of living. The existing literature on consumer equivalence scales provides little assistance in reaching this policy objective, as the estimated scales are both imprecise and reliant upon strong and opaque assumptions. This paper proposes an alternative modeling strategy which has low data requirements and involves the use of detailed, but transparent, assumptions about the extent of joint consumption of particular commodities. These assumptions are embedded in an economic model of household consumption and combined with household expenditure data to calculate consumer equivalence scales. It is estimated that, in 2003–04, Australian couples of Age Pension age who owned their own home needed expenditures between 1.32 and 1.60 times that of a single person. These scales were lower than those used in the pension system.     

A mean-variance approach to forecasting with the consumer confidence index

This article refines the way consumer confidence survey data are used in forecasting models. The refinement is easy to describe: it extends existing models by controlling for statistically significant changes in consumer confidence index values. The motivation behind this refinement is simply that not all changes in the confidence index are statistically significant, and mean index values alone provide a noisy signal. Using Michigan Index of Consumer Confidence from 1967 through 2013, we show that controlling for significant versus insignificant changes in the consumer confidence index materially enhances the explanatory power of household expenditure forecasting models.     

Intertemporal nonseparability,liquidity constraints,and seasonality of aggregate consumer expenditures: An empirical investigation

The paper proposes a simple framework for intertemporal nonseparability in consumer preferences. It relies on the distinction between consumption and expenditures. As only the latter are observable, a technology is postulated which gives current consumption as a weighted sum of current and past expenditures. The Euler equations of the modified maximization problem place restrictions on the autoregressive process of consumption and the real interest rate. Superimposing this model with an explicit seasonal model, results in a bivariate ARMA representation. Having investigated the issue of identification, the model is tested empirically by time series data on Austria. The main results of this investigation are. First, nonseparability is indeed an important element in characterizing aggregate expenditure behaviour. Current behaviour of households is therefore not exclusively forward looking but is committed by past expenditures. Second, this nonseparability is not due to habit formation but to a strong “durable component”. Third, Hall's orthogonality test presents no evidence for the presence of liquidity constrained households. Fourth, the misleading role of seasonal adjustment is documented. This raises serious doubts on the “excess sensitivity” and “smoothness” results which have been obtained with seasonally adjusted data.