This paper shows that the traditional specification of the consumption function in Dutch macroeconometric models is unsatisfactory. In the traditional approach the fact that the consumption decision is taken simultaneously with financial decisions has been ignored. If both the consumption function and the asset demand equations are modelled simultaneously, then in the Dutch case financial stocks have influence on private consumption. Also it has been shown that the income concept is important in describing household behaviour. In a current income model short-term financial considerations are important in the consumption decision. In a permanent income model long-term financial considerations influence private consumption.
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The author would like to thank Professor Th. van de Klundert, Professor S.K. Kuipers, Mr. G.H. Kuper and Dr. N.S. Kroonenberg for their comments on an earlier version of this paper.
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Sterken, E. A model of real and financial household behaviour. De Economist 136, 317–338 (1988). https://doi.org/10.1007/BF01151807
- Public Finance
- Private Consumption
- Financial Consideration
- Demand Equation
- Current Income