Private Consumption

We present a model of error correction with a single equation for private consumption in Spain. It is possible to specify the consumption according to observable variables, disposable income and wealth, so that consumption deviations from the trend marked by these variables depend on the expectations of the future incomes of the households. The estimation of a model of error correction allows to take into account the expectations of the households on their future incomes by introducing delays of the variables in the short term dynamics. It is necessary to introduce the real interest rate as a variable in the definitive model because the changes in the determinants of long-term consumption, income and wealth are directly related to it. It has been chosen to use the unemployment rate as the variable that approximates the uncertainty associated with future income in the short term and consumer credit to households as a proxy for possible liquidity constraints. The construction of the error correction model was performed using the two-stage estimation and an analysis of the predictive capacity of the model is presented.

Expansionary Fiscal Policy in the form of Deficit Fiscal is still being debated due to differences in views regarding the effect of budget deficits. The Ricardian Equivalence disciple argues that Deficit Fiscal Policy has a neutral impact on consumption. In contrast, Non-Ricardians (Keynesian and Neoclassical) argue that Budget Deficit Policy affects Private Consumption. Government policies affect private consumption through deficit fiscal policies such as budget deficits, government spending, taxes, and government debt. This study analyzes the effect of the fiscal deficit on consumption and observes the existence of the Ricardian Equivalence View in Indonesia. The estimation model used is the Vector Error Correction Model (VECM) through IRF and VD testing with time series data from 1980-2018. The results showed that the Budget Deficit Policy had a significant positive effect on private consumption, where the Fiscal Deficit shock was responded positively by Private Consumption. So t...