Picture of a black hole

Strathclyde Open Access research that creates ripples...

The Strathprints institutional repository is a digital archive of University of Strathclyde's Open Access research outputs. Strathprints provides access to thousands of research papers by University of Strathclyde researchers, including by Strathclyde physicists involved in observing gravitational waves and black hole mergers as part of the Laser Interferometer Gravitational-Wave Observatory (LIGO) - but also other internationally significant research from the Department of Physics. Discover why Strathclyde's physics research is making ripples...

Strathprints also exposes world leading research from the Faculties of Science, Engineering, Humanities & Social Sciences, and from the Strathclyde Business School.

Discover more...

Determining the appropriate deflation of nominal magnitudes in the UK consumption function - a nonnested test approach

Holden, D.R. and McGregor, P.G. (1991) Determining the appropriate deflation of nominal magnitudes in the UK consumption function - a nonnested test approach. Applied Economics, 23 (4B). pp. 781-790. ISSN 0003-6846

Full text not available in this repository. (Request a copy from the Strathclyde author)

Abstract

This paper is concerned with the deflator(s) used to obtain series measured in real terms in 'the' consumption function. Since the precise deflator(s) to be used in any particular specification is not uniquely determined by theoretical considerations alone we consider ways of approaching the issue empirically. The starting point is to rearrange any given specification of 'the' consumption function so that a nominal consumption variable is explained. This implies that different deflators for consumption, and other variables in the initial specification which are expressed in real terms, define non-nested models. We therefore examine the issue of the appropriate method of deflation used non-nested tests. We consider the Davidson, Hendry, Srba and Yeo specification of the quarterly UK non-durable consumption function and find that the preferred method of deflating consumption and income variables is to use the total (durable and non-durable) consumption deflator. We also examine the quarterly UK consumption function of Carruth and Henley, based on the work Hendry and Von Ungern-Sternberg. In this case a prefered deflator does not emerge from the alternatives considered. We conclude by noting that the approach adopted in this paper should be useful in areas other than the consumption function literature.