Summary
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.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Ando, A. and F. Modigliani (1963), ‘The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests,’American Economic Review, 53, pp. 55–84.
Backus, D. and D.D. Purvis (1980), ‘An Integrated Model of Household Flow-of-funds Allocations,’Journal of Money, Credit and Banking, 12, pp. 400–421.
Barro, R.J. (1974), ‘Are Government Bonds Net Wealth?,’Journal of Political Economy, 82, pp. 1095–1117.
Berg, P.J.C.M. van den, G.M.M. Gelauff and V.R. Okker (1987), ‘The FREIA-KOMPAS Model for the Netherlands: A Quarterly Macroeconomic Model for the Short and Medium Term,’Occasional Paper, 39, The Hague.
Blinder, A. and A. Deaton (1985), ‘The Time Series Consumption Function Revisited’Brookings Papers on Economic Activity, 2: 1985, pp. 465–521.
Brainard, W.C. and J. Tobin (1968), ‘Pitfalls in Financial Model Building,’American Economic Review, 58, pp. 99–122.
Central Planning Bureau (1985), ‘FREIA-KOMPAS '85, Een kwartaalmodel voor Nederland voor de korte en middellange termijn,’Monografie, 28, The Hague.
Clements, K.W. (1976), ‘A Linear Allocation of Spending-power System: A Consumer Demand and Portfolio Model,’Economic Record, 52, pp. 182–198.
Davidson, J., D.F. Hendry, F. Srba and S. Yeo (1978), ‘Econometric Modelling of the Aggregate Time-series Relationship between Consumers' Expenditure and Income in the United Kingdom,’Economic Journal, 88, pp. 661–692.
Deaton, A. (1972), ‘Wealth Effects on Consumption in a Modified Life-cycle Model,’Review of Economic Studies, 39, pp. 443–453.
De Nederlandsche Bank (1984), ‘MORKMON, een kwartaalmodel voor macroeconomische beleidsanalyse,’Monetaire Monografieën, 2, Deventer.
Denton, F.T. (1978), ‘Single Equation Estimators and Aggregation Restrictions when Equations have the Same Set of Regressors,’Journal of Econometrics, 8, pp. 173–179.
Erp, F.A.M. van, B.H. Hasselman and A.G.H. Nibbelink (1987), ‘De waarde van het aandelenbezit; Enkele ramingen,’Werkdocument, 21, The Hague.
Fair, R.C. (1984),Specification, Estimation, and Analysis of Macroeconometric Models, Harvard.
Friedman, M. (1956), ‘The Quantity Theory of Money: A Restatement,’ in: M. Friedman (ed.),Studies in the Quantity Theory of Money, University of Chicago Press.
Haan, J. de and D. Zelhorst (1987), ‘The Empirical Evidence on the Ricardian Equivalence Hypothesis,’Kredit and Kapital, forthcoming.
Hall, R.E. (1978), ‘Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence,’Journal of Political Economy, 86, pp. 971–987.
Knoester, A. (1980),Over geld en economische politiek, Leiden.
Kohli, U.R. and W.J. McKibbin (1982), ‘Are Government Deficits the Prime Cause of Inflation?,’Journal of Policy Modelling, 4, pp. 279–309.
Kuipers, S.K., G.H. Kuper and E. Sterken (1987), ‘The CCSO Annual Model of the Dutch Economy,’ Paper presented atThe Second Annual Congress of the European Economic Association and The 1987 European Meeting of the Econometric Society, Copenhagen, 1987.
Laidler, D.E.W. (1984), ‘The Buffer Stock Notion in Monetary Economics,’Economic Journal, 94 (Supplement), pp. 1–28.
Loo, P.D. van (1983),A Sectoral Analysis of the Dutch Financial System, Leiden. Lucas, R.E. (1976), ‘Econometric Policy Evaluation: A Critique,’ in: K. Brunner and A.H. Meltzer (eds.),The Phillips Curve and Labor Markets, Carnegie-Rochester Conference Series on Public Policy, 1, pp. 19–46.
Markowitz, H.M. (1959),Portfolio Selection: Efficient Diversification of Investments, New York.
Metzler, L.A. (1951), ‘Wealth, Saving and the Rate of Interest,’Journal of Political Economy, 59, pp. 96–116.
Mishan, E.J. (1958), ‘A Fallacy in the Interpretation of the Cash Balance Effect,’Economica, 25, pp. 106–118.
Modigliani, F. and R.E. Brumberg (1954), ‘Utility Analysis and the Consumption Function: An Interpretation of Cross-section Data,’ in: K.K. Kurihara (ed.),Post-Keynesian Economics, New Brunswick.
Molana, H. (1987), ‘Role of Personal Wealth, Relative Price and Interest Rate in the Aggregate Consumption Function: British Evidence,’Discussion paper 8704, Glasgow.
Mukherjee, R. and E. Zabel (1974), ‘Consumption and Portfolio Choices with Transaction Costs,’ in: M. Balch, D. McFadden and S. Wu (eds.),Essays on Economic Behaviour under Uncertainty, Amsterdam.
Nieuwkerk, M. van (1987), ‘Kapitaalexport,’Economsch-StatistischeBerichten, 72, pp. 352–358.
Okker, V.R. and R.J.A. den Haan (1987), ‘De consumptiefunctie in FK‘85,’Onderzoeksmemorandum, 29, The Hague.
Owen, D. (1986),Money, Wealth and Expenditure, Cambridge.
Parkin, M. (1970), ‘Discount House Portfolio and Debt Selection,’Review of Economic Studies, 27, pp. 469–497.
Parkin, M., R.J. Cooper, J.F. Henderson and M.K. Danes (1975), ‘An Integrated Model of Consumption, Investment and Portfolio Decisions,’Reserve Bank of Australia, Papers in Monetary Economics, Volume II.
Patinkin, D. (1965),Money, Interest, and Prices: An Integration of Monetary and Value Theory, New York.
Pigou, A.C. (1943), ‘The Classical Stationary State,’Economic Journal, 53, pp. 343–351. Pissarides, C.A. (1978), ‘Liquidity Considerations in the Theory of Consumption,' Quarterly Journal of Economics, 92, pp. 279–296.
Purvis, D.D. (1975), ‘Portfolio and Consumption Decisions: Towards A Model of the Transmission Process,’Reserve Bank of Australia, Papers in Monetary Economics, Volume II.
Purvis, D.D. (1978), ‘Dynamic Models of Portfolio Behaviour: More on Pitfalls in Financial Model Building,’American Economic Review, 68, pp. 403–409.
Smith, G. (1978), ‘Dynamic Models of Portfolio Behavior: Comment on Purvis,’American Economic Review, 68, pp. 410–416.
Sterken, E. (1986), ‘Een monetair model voor Nederland,’ CCSO-reeks, 1, Groningen.
Sterken, E. (1987a), ‘Een statistiek van de Nederlandse kapitaalmarkt,’CCSO-reeks, 4, Groningen.
Sterken, E. (1987b), ‘Should Portfolio Model Parameters be Restricted or Not?,’Mimeo, Groningen.
Sterken, E. (1987c), ‘Macroeconometric Models of the Financial System,’Mimeo, Groningen.
Thomas, R.L. (1981), ‘Wealth and Aggregate Consumption,’The Manchester School, 49, pp. 129–152.
Voorhoeve, W. (1986),Short-term Economic Forecasting in Practice: The GRECON Case, Groningen.
Zellner, A. (1962), ‘An Efficient Method of Estimating Seemingly Unrelated Regression and Tests for Aggregation Bias,’Journal of the American Statistical Association, 57, pp. 348–368.
Author information
Authors and Affiliations
Additional information
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.
Rights and permissions
About this article
Cite this article
Sterken, E. A model of real and financial household behaviour. De Economist 136, 317–338 (1988). https://doi.org/10.1007/BF01151807
Issue Date:
DOI: https://doi.org/10.1007/BF01151807