The Australian Short‐run Consumption Function: A Comment*

Rutledge, David J.S.; Madden, G. M.

doi:10.1111/j.1475-4932.1974.tb01986.x

Cited by 7 publications

(2 citation statements)

References 2 publications

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“…When the farm to other income variable was included in the function specification the magnitude of the estimated parameter on the variable became smaller, and in most cases significantly smaller according to the Chow test, when observations from the 1970s were included in the sample. This may explain the conflict between the results of this study and those obtained by Smyth and McMahon [33] and by Rutledge and Madden [30]; their sample periods ended in 1968. Also the latter studies implied a relatively long-run mpc for farm income.…”

Section: Income Eflectscontrasting

confidence: 95%

Inflation and Stability of the Household Consumption‐Savings Function*

Freebairn

1977

Economic Record

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Section: Income Eflectscontrasting

confidence: 95%

Inflation and Stability of the Household Consumption‐Savings Function*

Freebairn

1977

Economic Record

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“…9 9 Girao et al (1974), show that all these hypotheses fit their consumption data for United States southern Minnesotan farmers reasonably well, and that for each hypothesis the short and long run marginal propensity to consume of farmers was low, and lower still for the group of southern Minnesotan farmers whose income was less stable than that of other southern Minnesotan farmers. For the Australian evidence (Arndt and Cameron, 1957, p. 109; Duloy and Nevile, 1965; Smyth and McMahon, 1972, p. 231; Rutledge and Madden, 1974; Mullen et al , 1980, 1985; O'Mara, 1985a, 1985b). …”

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confidence: 99%

Local Manufacturing Hurt by Depreciations in a Theoretical Model Reflecting the Australian Experience

Pope

Selten

2002

Pacific Economic Review

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The model is motivated by data showing that the Australian production of local manufactures is hurt by depreciations and invigorated by appreciations. The paper briefly presents such evidence and then proceeds to a theoretical analysis. The model aims to capture shortto-medium run exchange rate effects in an economy with goods and services aggregated into four commodities: (i) imports; (ii) local manufactures; (iii) services; and (iv) rural goods (agricultural, pastoral, forestry, fishing and mining products). With the exception of rural goods, each commodity comprises consumer goods as well as inputs into the other sectors. Rural goods enter consumption only indirectly after processing by the manufacturing sector. Exports are exclusively rural goods. The model has a Keynesian flavour in that the production of local manufactures and services is not constrained by the availability of resources and of labour. Variable inputs per unit of output are assumed to be constant. There are also fixed inputs. Variable inputs are imports in the case of the import sector; rural goods and imports in the case of the local manufacturing sector; and labour in the case of the services sector. The prices of imports, local manufactures and services are set by constant mark-up factors on variable costs. This assumption is based on a picture of imperfect competition with constant elasticity of demand at the firm level. The extreme capital intensity of rural goods production is taken into account by modelling total production of rural goods as an exogenous parameter. The price of rural goods is determined in the export market. It falls with increasing exports. The economy is not assumed to be small in its export market. The domestic consumption demand schedule is modelled as predetermined in the sense that in the time span under consideration the relationship between quantities consumed and nominal prices is not affected by the exchange rate. The nominal wage rate is assumed to be predetermined in the same sense. No specific functional form is imposed on the consumption demand schedule: the analysis is based on general assumptions, mainly non-inferiority and gross substitutability. In view of gross substitutability, there is a competitive relationship between imports and local manufactures. A depreciation raises the price of imports and ceteris paribus such an increase raises the consumption of manufactures. However, the analysis shows that this enhancing influence of a depreciation on manufacturing is weaker than other causal channels that work in the opposite direction. An increase in the price of imports (and exportables) raises variable costs and thereby the price of local manufactures. This leads to a decrease in the output of local manufactures. In the course of the analysis, it is first shown that a uniquely determined equilibrium exists for every exchange rate above a lower bound. Then the effects of a change in the exchange rate are investigated. In most cases the results are unambiguous. In particular this is true for the outp...

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Does sentiment explain consumption?

Bryant

Macri

2005

J Econ Finan

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Carroll, Fuhrer and Wilcox (1994) studied the capacity of consumer sentiment to help explain the behaviour of consumption in the US. Their study was important for at least two reasons. Firstly, since household consumption accounts for about two thirds of US GDP, fluctuations in consumption may result in significant changes in the state of the macroeconomy. It is therefore important to develop models to explain and forecast consumption. In this regard Carroll, Fuhrer and Wilcox (1994) drew attention to the often-neglected variable 'consumer sentiment' and its potential role in explaining variations in consumption expenditure. Secondly, their finding that sentiment does indeed have explanatory power for consumption in the US has implications for theories of aggregate consumption, because at least one way of accounting for these findings involves some violation of the simplest certainty equivalence versions of the life-cycle and permanent-income theories.The results of Carroll, Fuhrer and Wilcox (1994) raise important theoretical and empirical issues that deserve careful study. Our contribution to such study is twofold. Firstly, we develop a model that suggests theoretical reasons why consumer sentiment may influence consumption expenditure. Secondly, we consider empirically the question of an independent influence running from sentiment to consumption in the context of Australia using a carefully specified consumption function as the 'test-bed' for the analysis. We are motivated to do this because although the Carroll, Fuhrer and Wilcox (1994) analysis is stimulating, it is based on a relatively ad hoc specification of the aggregate consumption function, a specification that arguably suffers from omitted variable bias, something which may seriously weaken their findings. In this paper we find that consumer sentiment does have small independent explanatory power as far as aggregate consumption is concerned even when 'standard' macroeconomic variables are allowed to play their full role.

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The Australian Short‐run Consumption Function: A Comment*

Cited by 7 publications

References 2 publications

Inflation and Stability of the Household Consumption‐Savings Function*

Inflation and Stability of the Household Consumption‐Savings Function*

Local Manufacturing Hurt by Depreciations in a Theoretical Model Reflecting the Australian Experience

Does sentiment explain consumption?

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