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Estimation Of Aggregate Consumption Function For Nepal Using Ardl Model

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  • Bibas Poudel

    (Department of Agricultural Economics and Agribusiness Management, Faculty of Agriculture, Agriculture and Forestry University, Nepal)

Abstract

Estimating the consumption function is important for informing policy makers aimed at promoting sustainable economic growth, poverty alleviation, and social development. This research study estimated the aggregate consumption function for Nepal from 2000 to 2022 using the Auto regressive Distributed Lag Model (ARDL). Real income, real exchange rate, interest rate, and inflation rate are the determinants for the study. The study reveals a long-term association among these variables through ARDL based co-integration test. While the elasticity coefficient of real income is significantly positive, the coefficients of other variables are negative. In the long run, there is an inverse relationship between the real depreciation of domestic currency and real consumption. The real interest rate appears to create substitution effects on consumption, while the inflation rate triggers real balance effects on Nepal’s aggregate consumption. The error correction coefficient (𝛾) was found to be -0.892.

Suggested Citation

  • Bibas Poudel, 2024. "Estimation Of Aggregate Consumption Function For Nepal Using Ardl Model," Food & Agribusiness Management (FABM), Zibeline International Publishing, vol. 5(2), pages 113-118, September.
    • Handle: RePEc:zib:zbfabm:v:5:y:2024:i:2:p:113-118
    DOI: 10.26480/fabm.02.2024.113.118
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