Modelling personal expenditures and savings

Thomas, Stephen Hill (1982) Modelling personal expenditures and savings. University of Southampton, Doctoral Thesis.

Abstract

In this thesis we develop dynamic quarterly models of personal expenditures and savings for the U.K. for the period 1963-78. The ability of a model to effectively capture the data generation process is an important criterion for model selection throughout the thesis. For our consumption analysis we use the nine categories of personal expenditures presented in Economic Trends, while for our savings model we first use the conventional Blue Book definition before exploring the nature of the data available in more detail. We are particularly concerned with the possibility of money illusion being present in the static versions of our models, and seek the possible reversal of this phenomenon in the static long-run solution to dynamically well-specified dynamic models. This does not appear to be the case for either expenditures or savings. At all times, we emphasise that the relation between the data we are forced to work with and the relevant economic theory may be less than ideal, and that therefore the development of models which adequately capture the data generation process and are economically sensible may be a more reasonable pursuit than the testing of elaborate theories on such data.

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