Intercountry evidence on the performance of the simple error correction mechanism model of consumption

This paper estimates a simple error correction mechanism (SECM) model of consumption a la Davidson, Hendry, Srba and Yeo (1978) for 13 OECD countries over the period 1951-1982. This is done for each country separately as well as for the pooled data. The basic results of this study are the following: (i) The SECM model appears as an adequate approximation to the data generating process on an individual country basis as well as in a pooled context. (ii) The pooled within estimator indicates a large and significant disequilibrium term while the between estimator indicates a small and insignificant disequilibrium term. This is consistent with the belief that the within estimator tend to yield short-run estimates while the between estimator tend to yield long-run estimates.