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Reinvestigating the U.S. Consumption Function: A Nonlinear Autoregressive Distributed Lags Approach
Ebadi, Esmaeil Are, Wasiu
Ebadi, Esmaeil
Are, Wasiu
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2023-11-08
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Abstract
This article examines the asymmetric aspect of U.S. consumption using disaggregated quarterly consumption expenditure data, including durables, nondurables, and services from 1994 to 2019. We apply a novel nonlinear autoregressive distributed lag analysis considering a regime-switching mechanism and find that U.S. consumers behave differently during economic upturns and downturns, with asymmetry existing for the consumption of durables (in the long run) and services (in both the short and long-run), but not for nondurables. Since services account for more than 40% of U.S. aggregate output, the slow adjustment toward equilibrium and the elasticity less than unity proves that services are more of a necessity than a luxury for U.S. consumers. The results indicate that the consumption of services is the primary determinant of U.S. consumer behavior, and monetary policy has a limited effect on U.S. consumption.
Citation
Ebadi, E., & Are, W. (2023). Reinvestigating the U.S. Consumption Function: A nonlinear autoregressive distributed lags approach. Economics, 17(1), article-number 20220045. https://doi.org/10.1515/econ-2022-0045
Publisher
De Gruyter
Journal
Economics: The Open-Access, Open-Assessment Journal
Research Unit
DOI
10.1515/econ-2022-0045
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Article
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© 2023 the author(s), published by De Gruyter
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ISSN
1864-6042