Acta Univ. Agric. Silvic. Mendelianae Brun. 2019, 67(6), 1653-1663 | DOI: 10.11118/actaun201967061653

The Excess Smoothness and Sensitivity of Consumption in the V4 Countries

Terézia Vančová
Department of Statistics and Operational Analysis, Faculty of Business and Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic

This paper contributes to the debate on the Permanent Income Hypothesis (PIH) and excess consumption smoothness and sensitivity in the context of conditions in the V4 countries. This paper also shows results contrary to the belief of the Permanent Income Hypothesis/Random Walk Hypothesis that the change in consumption is an innovation which is not predictable by lagged saving or lagged income change. The paper tests the implication of the Permanent Income Hypothesis/Random Walk Hypothesis, using quarterly aggregate data for 1995-2017 in the V4 countries. A vector autoregression for saving and changes in disposable income is used to generate a forecast of declines in disposable income. As a result, when income changes abruptly, the resulting change in consumption is much smoother and conversely, when changes in income are anticipated, consumption responds sensitively. The aggregate consumption is both excessively smooth relative to the new information causing consumers' revision of previous expectations about current and future income, and excessively sensitive to lagged income growth.

Keywords: consumption expenditure, disposable income, excess sensitivity, excess smoothness, savings, VAR model, V4 countries
Grants and funding:

Supported by grants No PEF_DP_2018030 and No PEF_DP_2019034 of the Grant Agency IGA PEF MENDELU.

Received: August 21, 2019; Accepted: October 23, 2019; Published: December 22, 2019  Show citation

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Vančová, T. (2019). The Excess Smoothness and Sensitivity of Consumption in the V4 Countries. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 67(6), 1653-1663. doi: 10.11118/actaun201967061653
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