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The consumption function and Ricardian equivalence in a small open economy

The paper provides a comprehensive survey of the theories of consumption functions. The Keynesian consumption function is examined in more detail under a condition of a small open economy. The paper explains the variety of consumption expenditures in the Czech Republic between 1993 - 2001. In this paper an enlarged version of the Czech consumption function, also tests Ricardian equivalence. Empirical results imply that consumer behaviour reacts rationally to an external imbalance and the economy heads to equilibrium by itself. However, the consumption reaction seems to be irrational under an internal balance. Consumers do not voluntarily reduce their consumption when deficit of public finance appears but they are forced to do so when interest rates increase as a result of the internal imbalance.
Year of publication:
2003
Authors: Mandel, Martin ; Tomšík, Vladimír
Published in:
Politická ekonomie. - Vysoká Škola Ekonomická v Praze, ISSN 0032-3233. - Vol. 2003.2003, 4
Publisher: Vysoká Škola Ekonomická v Praze
Subject: monetary policy | convergence | fiscal policy | consumption | Ricardian equivalence | terms of trades | balance of income
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Type of publication: Article
Classification: E21 - Consumption; Saving ; F15 - Economic Integration ; F32 - Current Account Adjustment; Short-Term Capital Movements ; F43 - Economic Growth of Open Economies
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