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Mark J. Holmes and Xin Shen
''An Alternative Nonlinear Perspective on the Consumption, Income and Wealth Relationship''
( 2012, Vol. 32 No.1 )
We provide new evidence on the relationship between consumption expenditure and key drivers namely, income and wealth. Using a testing procedure advocated by Bierens applied to US data, we find evidence that all series are in fact stationary around a nonlinear deterministic trend and are co-trended insofar as they share a common nonlinear deterministic trend. This can be seen in the context of cointegration-based studies that have often found against the existence of a long-run relationship. We also contribute to the ‘great ratios' debate concerning the time series properties of the average propensity to consume.
Keywords: Consumption, Income, Wealth, Average Propensity to Consume, Nonlinear, Co-trending.
JEL: E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
Manuscript Received : Oct 02 2011 Manuscript Accepted : Feb 27 2012

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