The treatment of seasonality in error correction models as unobserved component: a case study for an Austrian consumption function

This paper deals with an alternative approach to treating seasonality in error correction models for consumption with a parsimonious parameterization as proposed by Harvey and Scott. We introduce an unobserved seasonal component into an error correction model for Austrian consumer expenditures on nondurables and services and compare the results with different approaches. The use of stochastic seasonal results in a definite improvement of the estimated model.