The consumption function and Ricardian equivalence in a small open economy
AbstractThe paper provides a comprehensive survey of the theories of consumption functions. The Keynesian consumption function is examined in more detail under a condition of a small open economy. The paper explains the variety of consumption expenditures in the Czech Republic between 1993 - 2001. In this paper an enlarged version of the Czech consumption function, also tests Ricardian equivalence. Empirical results imply that consumer behaviour reacts rationally to an external imbalance and the economy heads to equilibrium by itself. However, the consumption reaction seems to be irrational under an internal balance. Consumers do not voluntarily reduce their consumption when deficit of public finance appears but they are forced to do so when interest rates increase as a result of the internal imbalance.
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Bibliographic InfoArticle provided by University of Economics, Prague in its journal Politická ekonomie.
Volume (Year): 2003 (2003)
Issue (Month): 4 ()
Postal: Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F15 - International Economics - - Trade - - - Economic Integration
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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