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Consumption, Credit, and Macroeconomic Policies: Theory and Evidence from the United States

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  • Magda Kandil
  • Ida Aghdas Mirzaie

Abstract

The paper examines determinants of private consumption in the USA. The empirical model includes disposable income, the University of Michigan consumer sentiment index, the interest rate, and the real effective exchange rate. Anticipated movements in these determinants are likely to affect planned consumption, while unanticipated changes determine cyclical consumption. Fluctuations in private consumption are mostly cyclical with respect to changes in disposable income and the consumers’ sentiment index. In contrast, an increase in the interest rate decreases both planned and cyclical consumption. Fiscal policy has a direct negative effect on cyclical consumption, which is not dependent on the interest rate. Monetary growth, in contrast, increases liquidity to finance both planned and cyclical private consumption.

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File URL: http://hdl.handle.net/10.1080/1226508X.2011.601645
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Global Economic Review.

Volume (Year): 40 (2011)
Issue (Month): 3 (September)
Pages: 323-360

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Handle: RePEc:taf:glecrv:v:40:y:2011:i:3:p:323-360

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Cited by:
  1. Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan, vol. 39(3), pages 309-327.

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