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Estimation of Private Consumption Function of Iran: Autoregressive Distributed Lag Approach to Co-integration

Author

Listed:
  • Behnam Nikbin

    (Allameh Tabataba'i University, Tehran, Iran)

  • Saman Panahi

    (Allameh Tabataba'i University, Tehran, Iran)

Abstract

Considering consumption due to its pivotal role in economic growth and also aggregate demand and specially its long-run analysis have always been in the center of attention. In this study, we have estimated private consumption function, using auto-regressive distributed lag (ARDL) approach and employing annual data during 1978-2012. Short-run elasticity of private consumption function regarding to its lag is 0.50 and to gross domestic product is approximately 0.56. Also, the latter amount for long-run elasticity is 1.13. Furthermore, the estimation demonstrates a negative correlation between inflation and private consumption in both long-run and short-run relationships. Error correction model is estimated as well, and the coefficient is equal to -0.49 which shows the pace in which the private consumption function adjusts to its long-run equilibrium

Suggested Citation

  • Behnam Nikbin & Saman Panahi, 2016. "Estimation of Private Consumption Function of Iran: Autoregressive Distributed Lag Approach to Co-integration," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 653-659.
    • Handle: RePEc:eco:journ1:2016-02-39
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    References listed on IDEAS

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    5. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
    6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    7. Fernández-Villaverde, Jesús & Krueger, Dirk, 2011. "Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(5), pages 725-770, November.
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    Cited by:

    1. Chen Kong San & Lee Chin, 2023. "Impact of Public Debt on Economic Growth: A Quantile Regression Approach," South Asian Journal of Macroeconomics and Public Finance, , vol. 12(2), pages 250-278, December.
    2. Ondřej Badura, 2018. "Vliv relativního příjmu na sklon ke spotřebě případ České republiky [An Influence of Relative Income on the Propensity to Consume - Czech Republic Case Study]," Politická ekonomie, Prague University of Economics and Business, vol. 2018(4), pages 430-449.

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    More about this item

    Keywords

    Consumption Function; Auto-regressive Distributed Lag Approach; Error Correction Model;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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