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An International Comparison of Long-Run Consumer Behaviour

  • Stewart C.

Using the Johansen procedure I test for cointegration between consumption, private disposable income and inflation for 20 OECD countries over the period 1955–1994. There is evidence of cointegration for all countries. Plausible long–run consumption functions are obtained for 18 countries, and feature heterogeneous parameter estimates across countries. Evidence against a unit–income elasticity is obtained for 11 countries suggesting that one would be unwise to assume consumption is homogenous of degree one in income. Inflation is statistically significant and negative for only 7 countries indicating that it is not a fundamental explanatory factor of consumption for many countries. Cross–country regressions for the income elasticity reveal a negative association with income growth, the log–level of income and income inequality and a positive correlation with the fiscal surplus/deficit and the availability of credit. The cross–country regressions of the inflation elasticity are consistent with inflation acting as a proxy for asset effects.

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Article provided by European Research Studies Journal in its journal European Research Studies Journal.

Volume (Year): IV (2001)
Issue (Month): 3-4 (July - December)
Pages: 19-36

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Handle: RePEc:ers:journl:v:iv:y:2001:i:3-4:p:19-36
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  1. Horioka, Charles Yuji, 1996. "Capital Gains in Japan: Their Magnitude and Impact on Consumption," Economic Journal, Royal Economic Society, vol. 106(436), pages 560-77, May.
  2. Hall, S G, 1991. "The Effect of Varying Length VAR Models on the Maximum Likelihood Estimates of Cointegrating Vectors," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(4), pages 317-23, November.
  3. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  4. Sefton, J A & In't Veld, J W, 1999. "Consumption and Wealth: An International Comparison," Manchester School, University of Manchester, vol. 67(4), pages 525-44, September.
  5. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, July.
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  7. Gonzalo, Jesus & Lee, Tae-Hwy, 1998. "Pitfalls in testing for long run relationships," Journal of Econometrics, Elsevier, vol. 86(1), pages 129-154, June.
  8. Banks, James & Blundell, Richard & Preston, Ian, 1994. "Life-cycle expenditure allocations and the consumption costs of children," European Economic Review, Elsevier, vol. 38(7), pages 1391-1410, August.
  9. Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," SSE/EFI Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
  10. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  11. Pesaran, M. H. & Shin, Y. & Smith, R. P., 1997. "Pooled Estimation of Long-run Relationships in Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9721, Faculty of Economics, University of Cambridge.
  12. Alan Carruth & Heather Gibson & Euclid Tsakalotos, 1996. "Are Aggregate Consumption Relationships Similar Across the EU?," Studies in Economics 9609, School of Economics, University of Kent.
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