An alternative approximation to consumer durables expenditures

Abstract

Consumer durables expenditures are normally assumed to be of linear form with additive error term. Hansen and Singleton (1983) derive the log linear form for consumption, but they do not employ a depreciation rate. In this article, we use a multiplicative error term to obtain a log linear AR(1) with a unit root as an approximate process that drives durables expenditure. The Box–Cox test rejects the linear form in favour of the log linear one. The Box–Jenkins model selection procedure and the augmented Dickey–Fuller test support an AR(1) in log linear form.

Notes

¹ For a complete proof, please contact Tam Vu at [email protected]

² All estimations were by SHAZAM Econometric Software.