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Error correction in DHSY

By Ann-charlotte Eliasson and Timo Teräsvirta

Abstract

In this note, we consider the contradiction between the fact that the bestfitfortheUKconsumptiondatainDavidsonetal. (1978)isobtained using an equation with an intercept but without an error correction term, whereas the equation with error correction and without the intercept has better post-sample forecasting properties than the former equation. This contradiction is explained and the two equations reconciled in a nonlinear framework by applying a smooth transition regression model to the data

Topics: JEL Classification Codes, C22
Year: 2002
OAI identifier: oai:CiteSeerX.psu:10.1.1.136.1114
Provided by: CiteSeerX
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