Forecasting aggregate consumers’ expenditure in the U.K. using the DHSY model

The performance of the DHSY model in predicting the growth of aggregate consumers' expenditure in the UK over the period 1985–1988 is examined. The model is applied to four different combinations of consumption variable and data type. Results show, in all cases, the predictive performance of the DHSY model to be poor. However, applied to seasonally adjusted data, an improvement can be achieved by allowing for systematic variation in coefficients. In particular, a variable-coefficient DHSY model displays no tendency to underpredict the growth of total consumers' expenditure and accurately captures the volatility of non-durable expenditure.