IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v49y2022i3d10.1007_s10663-022-09535-y.html
   My bibliography  Save this article

Ability to consume versus willingness to consume: the role of nonlinearities

Author

Listed:
  • Petar Sorić

    (University of Zagreb)

Abstract

Following the tradition of George Katona, this study utilizes consumer surveys to extract indicators of ability to consume and willingness to consume for 28 European economies. A function of durables consumption is specified, acknowledging the potentially important role of nonlinearities, which have insofar been neglected in the literature. The estimated state space models reveal that the effects of both stated subjective concepts exhibit considerable time-variability. Their impact seems to be heavily dependent on the business cycle, with an intensification of the observed relationship during recessions. Further on, nonlinear autoregressive distributed lag modelling indicates significant asymmetries in the impact of ability to consume: household expenditure generally reacts more strongly to negative than to positive changes of the stated variable. To that end, the presented specifications corroborate the main postulate of prospect theory. On the other hand, willingness to consume does not exhibit such pronounced asymmetry. Finally, the detected nonlinearities are exclusively transitory, reaffirming animal spirits as a short-run predictor of economic behavior.

Suggested Citation

  • Petar Sorić, 2022. "Ability to consume versus willingness to consume: the role of nonlinearities," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 663-689, August.
    • Handle: RePEc:kap:empiri:v:49:y:2022:i:3:d:10.1007_s10663-022-09535-y
    DOI: 10.1007/s10663-022-09535-y
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10663-022-09535-y
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10663-022-09535-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-1377, June.
    2. Karsten Staehr, 2013. "Austerity in the Baltic states during the global financial crisis," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 48(5), pages 293-302, September.
    3. Paradiso, Antonio & Kumar, Saten & Margani, Patrizia, 2014. "Are Italian consumer confidence adjustments asymmetric? A macroeconomic and psychological motives approach," Journal of Economic Psychology, Elsevier, vol. 43(C), pages 48-63.
    4. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
    5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    6. Petar Sorić, 2018. "Consumer confidence as a GDP determinant in New EU Member States: a view from a time-varying perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(2), pages 261-282, May.
    7. Jason Bram & Sydney C. Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Jun), pages 59-78.
    8. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-176, May.
    9. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
    10. B. Peters & Jon Pierre & Tiina Randma-Liiv, 2011. "Global Financial Crisis, Public Administration and Governance: Do New Problems Require New Solutions?," Public Organization Review, Springer, vol. 11(1), pages 13-27, March.
    11. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    12. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-279, July.
    13. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Luigi Pistaferri & Maarten van Rooij, 2019. "Asymmetric Consumption Effects of Transitory Income Shocks," The Economic Journal, Royal Economic Society, vol. 129(622), pages 2322-2341.
    14. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    15. Sarah Gelper & Christophe Croux, 2010. "On the Construction of the European Economic Sentiment Indicator," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 47-62, February.
    16. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    17. Hamid Baghestani & Sehar Fatima, 2021. "Growth in US Durables Spending: Assessing the Impact of Consumer Ability and Willingness to Buy," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(1), pages 55-69, April.
    18. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    19. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    20. Greenwood-Nimmo, Matthew & Shin, Yongcheol, 2013. "Taxation and the asymmetric adjustment of selected retail energy prices in the UK," Economics Letters, Elsevier, vol. 121(3), pages 411-416.
    21. Petar Sorić & Blanka Škrabić & Mirjana Čižmešija, 2013. "European Integration in the Light of Business and Consumer Surveys," Eastern European Economics, Taylor & Francis Journals, vol. 51(2), pages 5-20, March.
    22. Sven Larson, 2002. "Uncertainty and Consumption in Keynes's Theory of Effective Demand," Review of Political Economy, Taylor & Francis Journals, vol. 14(2), pages 241-258.
    23. Gokcen Coskuner-Balli & Eileen Fischer & Linda L Price & Güliz Ger, 2020. "Citizen-Consumers Wanted: Revitalizing the American Dream in the Face of Economic Recessions, 1981–2012," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 47(3), pages 327-349.
    24. Apergis, Nicholas & Miller, Stephen M., 2006. "Consumption asymmetry and the stock market: Empirical evidence," Economics Letters, Elsevier, vol. 93(3), pages 337-342, December.
    25. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    26. Commandeur, Jacques J.F. & Koopman, Siem Jan, 2007. "An Introduction to State Space Time Series Analysis," OUP Catalogue, Oxford University Press, number 9780199228874.
    27. Durbin, James & Koopman, Siem Jan, 2012. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, edition 2, number 9780199641178, Decembrie.
    28. Roos, Michael W.M., 2008. "Willingness to consume and ability to consume," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 387-402, May.
    29. Alan Speight & David McMillan, 1997. "Are there asymmetries in UK consumption? A closer look," Applied Economics Letters, Taylor & Francis Journals, vol. 4(4), pages 241-245.
    30. Baghestani, Hamid, 2021. "Predicting growth in US durables spending using consumer durables-buying attitudes," Journal of Business Research, Elsevier, vol. 131(C), pages 327-336.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eleni Zafeiriou & Constantinos Katrakilidis & Chrysanthi Pegiou, 2019. "Consumer Confidence on Heating Oil Prices: An Empirical Study of their Relationship for European Union in a Nonlinear Framework," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 63-90.
    2. Petar Sorić & Mirjana Čižmešija & Marina Matošec, 2020. "EU Consumer Confidence and the New Modesty Hypothesis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(3), pages 899-921, December.
    3. Brunila, Anne, 1997. "Current income and private consumption : Saving decisions : Testing the finite horizon model," Research Discussion Papers 6/1997, Bank of Finland.
    4. repec:zbw:bofrdp:1997_006 is not listed on IDEAS
    5. Brunila, Anne, 1997. "Current income and private consumption: Saving decisions: Testing the finite horizon model," Bank of Finland Research Discussion Papers 6/1997, Bank of Finland.
    6. Sudeshna Ghosh, 2021. "Consumer Confidence and Consumer Spending in Brazil: A Nonlinear Autoregressive Distributed Lag Model Analysis," Arthaniti: Journal of Economic Theory and Practice, , vol. 20(1), pages 53-85, June.
    7. Madsen, Jakob B. & Mcaleer, Michael, 2000. "Direct Tests of the Permanent Income Hypothesis under Uncertainty, Inflationary Expectations and Liquidity Constraints," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 229-252, April.
    8. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    9. Juhro, Solikin M. & Iyke, Bernard Njindan, 2020. "Consumer confidence and consumption expenditure in Indonesia," Economic Modelling, Elsevier, vol. 89(C), pages 367-377.
    10. Takala, Kari, 1995. "The consumption function revisited : an error-correction model for Finnish consumption," Research Discussion Papers 20/1995, Bank of Finland.
    11. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Staff Working Papers 02-22, Bank of Canada.
    12. S. Heravi & J. Easaw & R. Golinelli, 2016. "Generalized State-Dependent Models: A Multivariate Approach," Working Papers wp1067, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Alvin Tan & Graham Voss, 2000. "Consumption and Wealth," RBA Research Discussion Papers rdp2000-09, Reserve Bank of Australia.
    14. Brunila, Anne, 1996. "Fiscal policy and private consumption: Saving decisions: Evidence from Finland," Bank of Finland Research Discussion Papers 28/1996, Bank of Finland.
    15. Christopher D. Carroll & Jiri Slacalek & Martin Sommer, 2011. "International Evidence on Sticky Consumption Growth," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1135-1145, November.
    16. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    17. Aleksandar Vasilev, 2015. "Modeling Real Private Consumption Expenditure in Bulgaria after the Currency Board Implementation (1997-2005)," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 18(1), pages 81-89, May.
    18. Jin Xu & Dongmin Kong, 2015. "Understanding The Household Consumption Behavior In Urban China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(05), pages 1-21, December.
    19. Parise, Gerald F., 1994. "Permanent income hypothesis and the cost of adjustment," ISU General Staff Papers 1994010108000012303, Iowa State University, Department of Economics.
    20. Claes Fornell & Paul Damien & Marcin Kacperczyk & Michel Wedel, 2018. "Does Aggregate Buyer Satisfaction affect Household Consumption Growth?," DOCFRADIS Working Papers 1802, Catedra Fundación Ramón Areces de Distribución Comercial, revised Jun 2018.
    21. Takala, Kari, 1995. "The consumption function revisited: an error-correction model for Finnish consumption," Bank of Finland Research Discussion Papers 20/1995, Bank of Finland.

    More about this item

    Keywords

    Ability to consume; Willingness to consume; Personal consumption; Time-varying parameters; Nonlinear autoregressive distributed lag model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:49:y:2022:i:3:d:10.1007_s10663-022-09535-y. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.