# a. Using observations on the change in consumption (D C_{t}=C_{t}-C_{t-1}) and the change in income (D Y_{t}=)

## Question:

**a.** Using observations on the change in consumption \(D C_{t}=C_{t}-C_{t-1}\) and the change in income \(D Y_{t}=\) \(Y_{t}-Y_{t-1}\) from 1959Q3 to 2015Q4, obtained from the data file cons_inc, estimate the following two models

**b.** Use each model estimated in part **(a)** to forecast consumption \(C\) in 2016Q1, 2016Q2, and 2016Q3.

**c.** Use the mean-square criterion \(\sum_{t=2016 Q 1}^{2016 Q}\left(\hat{C}_{t}-C_{t}\right)^{2}\) to compare the out-of-sample predictive ability of the two models.

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**Related Book For**

## Principles Of Econometrics

**ISBN:** 9781118452271

5th Edition

**Authors:** R Carter Hill, William E Griffiths, Guay C Lim