Error Correction and Forward Looking Models for UK Consumers' Expenditure.

The objective of this paper is to investigate the relation between error correction and forward looking models for the U.K. consumers' expenditure on nondurable goods and services. The author establishes conditions under which the error correction model cannot be considered a reduced form of a forward-looking model and he performs a statistical test. The author's investigation suggests that an error correction model for consumption is statistically distinguished from a reduced form of a forward-looking rational expectations model. Copyright 1993 by Blackwell Publishing Ltd