Cointegration and disaggregation: evidence from UK consumers' expenditure

Abstract

Recent work has shown the components of consumers' expenditure to exhibit differing temporal properties. Evidence from univariate tests of asymmetric behaviour and time deformation models have found durable consumption to possess excessive cyclicality and display a greater degree of asymmetric behaviour than other components of aggregate consumption. In light of this, and the work of Gonzalo (mimeo, University of California, San Diego, 1988) and Granger (Long Run Economic Relationships (Eds) R. F. Engle and C. W. J. Granger, OUP, Oxford, 1991) on the relationship between aggregation and cointegration, the extent of cointegration between income and the components of consumers' expenditure is examined. The findings of the above studies suggest that durable goods are more likely to be cointegrated with income than other components of consumption. The results of this letter support this hypothesis.