Industrial Restructuring, Financial Instability and the Dynamics of the Postwar US Economy (RLE: Business Cycles) by Carrier David J.;

Author:Carrier, David J.;
Language: eng
Format: epub
ISBN: 2001984
Publisher: Taylor & Francis Group

Personal consumption, right (logarithmic) scale; residuals as percent of consumption, left scale

Figure 4.3: Personal consumption and regression estimate

The results in table 4.2 show that the inclusion of consumer credit reduces the mean squared residuals by 50% in regressions where income is differentiated by type. This signifies that personal income alone does not explain consumption patterns as well as a combination of consumer credit and income. The inclusion of consumer credit radically alters the coefficient values; it increases the impact of a unit of transfer income on consumption, but reduces the impact of a unit of employee compensation and property income, indicating that credit is a substitute. The coefficient of property income is reduced by over half, to something that is probably a more realistic approximation of its actual value.

Figure 4.3 shows graphically the fit of this last regression in comparison to actual historical values of consumption. In the lower half of the graph the residuals of cases E and F are plotted to compare the estimates. The residuals for case F are much lower, but it’s more interesting to see exactly where the patterns of error in the estimates lie for the two regressions. The regression without credit underestimates consumption during the recession and expansion of the early 1980s, when consumers spent well beyond their income levels; and overestimated it during the late 1970s, when high interest rates (and so, interest payments) cut into disposable income.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.