Fluctuations in private consumption in Finland 1963–1979
Introduction
Private consumption expenditure constitutes by far the largest component of gross domestic product utilisation. Accordingly, as thorough an understanding as possible of household consumption and saving behaviour is essential both for the preparation of macroeconomic forecasts and for the planning of economic policy. Even a small error in estimating the saving rate leads, given the large weight of consumption, to a considerable under- or overestimation of aggregate demand. An underestimation of household saving (that is, an overestimation of consumption) in a deteriorating cyclical situation easily leads also to an overestimation of growth and to economic policy that is too passive in the face of the unemployment problem. On the other hand, an overestimation of saving can in an upswing lead to an underestimation of inflationary pressures. In addition to its influence on the cyclical situation, saving behaviour also affects, both directly and indirectly, among other things the medium- and long-term growth prospects and the balance of foreign trade.
Successful forecasting of consumption and, above all, effective economic policy directed at it require knowledge of how the consumption behaviour of the household sector depends on the factors influencing it. The purpose of this study is to structure and quantitatively assess the effects of certain key factors on fluctuations in private consumption. The main emphasis is on examining fluctuations in the total volume of consumption in the household sector, but consumption is also examined separately broken down by durability category. The durability category analysis seeks to illuminate the considerable significance of durable consumption goods for overall consumption fluctuations and their particular sensitivity to, among other things, changes in the state of money markets. The empirical analysis is conducted using both annual and quarterly data, with the main emphasis on the annual analysis.
The structure of the study is as follows. Chapter 2 presents the concept of the macro consumption function and provides a brief and selective review of the theory of the macro consumption function and Finnish consumption research. The main emphasis of the study is in chapter 3, where the results of the empirical research are presented. Of the numerous possible factors affecting consumption, this study focuses primarily on the effects of income, the tightness of money markets (credit rationing), and inflation. Chapter 4 assesses, in the light of the findings, the effects of monetary and fiscal policy on consumption and considers the possibilities of economic policy to influence overall economic development through the channel of consumption. Chapter 5 presents a summary and, in condensed form, certain conclusions. (AI translation)
- ISSN: 0358-5980
- ISBN: 951-9281-30-4
