The ex-ante inflation corrected government balance: Theory and application to ten OECD countries.

The thesis uses a conventional consumption function, annual data for a number of OECD countries and up-to-date precise econometric techniques to assess the extent to which consumers allow for the effects of inflation on conventional measures of income and wealth. More concretely, it uses a life cycle consumption function, which is estimated for both the long run and the short run for 10 OECD countries. For the estimation of the long run function, the Johansen approach is used. This estimation is followed by the estimation of an error collection model. The latter is accompanied by the performance of all the necessary statistical tests regarding the validity of the classical regression assumptions. In the case of a number of countries considered the wealth variable used includes series of housing wealth generated in the thesis using the perpetual inventory method. Regarding the data for the remaining variables, our effort was to use data for as many years as possible. Thus, usually the sample extents from mid-fifties to early nineties. The data sources were the OECD, the IMF, and in some cases national sources. Regarding now the estimates of the degree of income correction, the results show that the long run one exhibits considerable variation from country to country, while the short run one is generally rather low. The estimates of the short and the long run degree of income correction are used to correct the official current account government balance for the effects of inflation. The government balance as it is corrected by our approach is many times considerably different from both the conventional balance and the traditionally corrected one, while substantial are sometimes the differences between the short run and the long run estimates of this balance.