Assymetric Mean Reversion in the Consumption-Income Ratio: Evidence from OECD economies

The debate concerning the mean reverting nature of the consumption-income ratio is revisited. The existing literature is extended by allowing for the as yet unconsidered possibility of asymmetric mean reversion in a collection of OECD economies. Using specifically derived finite-sample critical values, it is found that this approach leads to increased detection of mean reversion. However, the most striking feature of the results is the highly significant asymmetric mean reversion exhibited in Australia and Spain, which contrasts strongly with all other economies examined and is indicative of very different underlying consumer and savings behaviour.