Empirical Studies in Consumption, House Prices and the Accuracy of European Growth and Inflation Forecasts

Sammanfattning: This thesis consists of four essays: Essay 1: The Role of Wealth in the Aggregated Consumption Function using an Error Correction Approach: Swedish Evidence from the years 1970 - 1993, an aggregated consumption function based on the life cycle hypothesis using the error correction methodology is estimated for Sweden. Aggregate wealth is spilt into net financial and housing wealth. The study finds that each of the primary components of wealth has an equal role for wealth. Essay 2: A Full Fledged Demand-Supply Econometric Model for Swedish Private housing (1970-2000), develops an econometric housing market model for Swedish Private Housing. A Stock-Flow model serves as the theoretical basis for the fundamental determinants of real estate construction and prices. The importance of the simulations and their usefulness to Swedish policy makers is discussed. Both ex post and ex ante forecasts using the model gives reasonable results. Essay 3: The Stock-Flow Model for Sweden and the United Kingdom: Econometric Analysis for the period 1970-1998, estimates quarterly dynamic housing demand and investment supply models for Sweden and the UK using the Error Correction Method. We investigate the degree of similarities and differences with respect to both the short and the long-term point estimates, elasticity, and the error correction speed of adjustment coefficients. The long run income elasticity for Sweden and the UK are constrained to be 1.0 respectively. The speed of adjustment on the demand side is 12% respective 23% while on the supply side is 6% and 48% for Sweden respectively the UK. Granger causality tests indicate that income granger causes house prices for Sweden, while for the UK there is also a feedback from house prices to income. In both countries Tobins'q Granger causes housing investment. Essay 4: The Accuracy of the European GDP and Inflation forecasts, evaluates the one-year ahead forecasts by the OECD and by the national institutes of GDP growth and inflation in 13 European countries. RMSE (Root mean square error) was large 1.9% for growth and 1.6% for inflation. Six (11) OECD and ten (7) institute growth forecasts record were significantly better than an average growth forecast (the current year forecast). All full record-length inflation forecasts were significantly better than both naive alternatives. Directional forecasts were significantly better than a naive alternative in one-half of the cases. Overall, inflation forecasts were signifantly more accurate than growth forecasts, and in contrast to growth forecasts, they generally improved over time. Positively biased revisions reveal large errors in data.