Abstract
This paper provides estimates of the effect of activity in the housing market on aggregate consumer spending and indirectly on personal saving behaviour. During the last three years consumer spending has grown very rapidly, and the dramatic fall in the savings rate has been given widespread attention. It has been apparent that the main macro-economic forecasting groups failed to predict the boom in spending (see Whitley (1989) and Carruth and Henley (1990)). Moreover, the popular consumption function specifications, based on Davidson, Hendry, Srba and Yeo (1978), are no longer acceptable in the sense of Hendry (1983), as they fail parameter constancy tests for the period since 1985 (see Curry, Holly and Scott (1989a and 1989b) and Carruth and Henley (1990)).
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