TY - JOUR
T1 - Tests of Nonlinear Consumption Functions
T2 - The Case of Korea, Taiwan, Thailand and India
AU - Hsieh, Wen jen
N1 - Funding Information:
The study of aggregate consumption functions is significant because potential changes in the parameters of the. consumption function may have important policy implications. Since MPS = 1 - MPC, when the MPC changes, additional saving out of additional income will vary in the opposite direction. According to Krugman (1992), the main cause of trade deficits is the decline in saving. Budget deficits will also partly contribute to trade deficits. Since the fall of U. S. national saving in 1981, the U. S. investment demand was partly financed by foreign capital. This will push the interest rate upward, make the exchange rate appreciate, and hurt exports. When saving rises, however, the government can finance the budget deficit domestically and needs not borrow heavily abroad. This would result in a cheaper currency and an increase in net exports, shrinking trade deficits.' Another major concern is whether the interest rate in the consumption function is positive, negative, or insignificant. The answer to this question depends on the combined forces of the income and substitution effects. The conventional wisdom
Funding Information:
*We are very grateful to the editor and an anonymous referee for insightful comments. The usual caveats apply. This research was partly supported by a summer release time grant from Southeastern Louisiana University. Empirical results were estimated with SHAZAM Version 7.0. 'Two other scenarios are possible. For Japan and Taiwan, Saving ratios are high, resulting in large trade surpluses. For the U. S., Saving ratios are low and budget deficits are large, leading to large trade deficits.
Copyright:
Copyright 2018 Elsevier B.V., All rights reserved.
PY - 1994/6/1
Y1 - 1994/6/1
N2 - In this study, the permanent-income hypothesis and the Keynesian consumption function for four Asian countries are considered. The MPCs for Korea and Taiwan characterized by rapid economic growth have been on the decline, whereas the MPCs for Thailand and India with moderate or low economic growth “have been stable. The decline in MPCs and rise in MPSs, in turn, are expected to facilitate government debt financing domestically and/or improve trade balance account. The real interest rate is found to be negative and significant only for India, suggesting that the government may use monetary policy to encourage saving. [E 21, O 11].
AB - In this study, the permanent-income hypothesis and the Keynesian consumption function for four Asian countries are considered. The MPCs for Korea and Taiwan characterized by rapid economic growth have been on the decline, whereas the MPCs for Thailand and India with moderate or low economic growth “have been stable. The decline in MPCs and rise in MPSs, in turn, are expected to facilitate government debt financing domestically and/or improve trade balance account. The real interest rate is found to be negative and significant only for India, suggesting that the government may use monetary policy to encourage saving. [E 21, O 11].
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U2 - 10.1080/10168739400080014
DO - 10.1080/10168739400080014
M3 - Article
AN - SCOPUS:84949338780
VL - 8
SP - 71
EP - 81
JO - International Economic Journal
JF - International Economic Journal
SN - 1016-8737
IS - 2
ER -