An error-correction modeling of US consumer spending: are there asymmetries?

Abstract

Purpose -The purpose of this paper is to investigate four possible asymmetries in US aggregate consumption and its major components (durables, non-durables, and services) for the period 1990-2013. Understanding the asymmetric behavior of the components is important since the impact of monetary policy on separate consumer spending categories may differ substantially. Design/methodology/approach -The authors first employ stationarity and cointegration tests to specify and estimate the long-run equilibrium relationship between consumer spending and such variables as disposable income, consumer sentiment, and the expected real interest rate. The authors then specify a structural error-correction model for each spending category to simultaneously investigate such possible asymmetries due to the ratchet effect, psychological negativity bias, interest rate effect, and varying degree of adjustment in eliminating disequilibrium defined as the gap between actual and desired spending. Findings -First, consumption and its major components all display asymmetric behavior consistent with psychological negativity bias. Second, consumer spending on durable goods also displays asymmetries consistent with both the ratchet effect and the interest rate effect. Third, non-durables respond asymmetrically to disequilibrium; consumers adjust (increase) spending on non-durables only when actual spending is below desired spending on non-durable goods. Fourth, services also respond asymmetrically to disequilibrium; consumers adjust (reduce) spending on services only when actual spending is above desired spending on services. Originality/value -This study provides new insight on the asymmetric behavior of consumer spending. The authors believe that the findings should help with macroeconomic policymaking when such indicators as income, consumer sentiment, and expected real interest rates display significant variations.

Asymmetries in US demand for gasoline

“…This result reinforces the ratchet effect described above, but contradicts the psychological negativity bias, according to which people are generally more sensitive to bad news than they are to good news (Rozin and Royzman, ). While empirical research has shown that psychological negativity bias holds for aggregate consumption (Nguyen and Claus, ; Baghestani and Kherfi, ), our findings suggest otherwise for consumer spending on gasoline. This may be due to the lack of close substitutes for gasoline.…”

“…Consistent with this notion, Nguyen and Claus (2013) show that Australian aggregate consumption asymmetrically responds to changes in consumer sentiment. 1 Baghestani and Kherfi (2015) provide similar findings for US aggregate consumption and its major components. For instance, they show that US consumers reduce spending on durable goods, nondurable goods and services in response to a drop in consumer sentiment, but do not adjust such spending when sentiment improves.…”

Do inpayments and outpayments respond to exchange rate changes asymmetrically: Evidence from Malaysia

“…However, when we consider the short-run estimates from the nonlinear models (NL-ARDL) either the ΔPOS or ΔNEG variable carry at least one significant coefficient in all models. These Durmaz (2015), Baghestani and Kherfi (2015), Pal and Mitra (2016), Al-Shayeb and Hatemi-J. (2016), Lima et al (2016), Nusair (2017), Aftab et al (2017), andGregoriou (2017).…”

On the Impact of Policy Uncertainty on Oil Prices: An Asymmetry Analysis

“…Table 1 reports the results. For more on the application of these methods see (Delatte and Lopez-Villavicencio 2012;Bahmani-Oskooee and Fariditavana 2015;Bahmani-Oskooee and Sujata 2015;Durmaz 2015;Baghestani and Kherfi 2015;Pal and Mitra 2016;Al-Shayeb and Hatemi-J 2016;Lima et al 2016;Nusair 2017;Aftab et al 2017;Gregoriou 2017 From the short-run estimates of the linear models reported in Panel A, we gather that policy uncertainty measure has a significant effect on oil prices in the cases of Canada, Europe, Japan, Russia, South Korea, and the U.S. In all the cases, the effects are adverse, implying that increased uncertainty in any of these countries has adverse effects on oil prices.…”