Econometric Modelling of the Aggregate Time Series Relationship Between Consumers Expenditure and Income in the UK

Simple time‐series representations dominated quarterly permanent‐income/life‐cycle models of consumption in fit and predictive accuracy. However, an ‘error‐correction’ model (ECM, using the log consumption/income ratio) reconciled both the theories and the evidence, and treated as the DGP, explained the connection between the time‐series and econometric equations. 

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