Macroeconomic Volatility and Private Consumption Expenditure: Implication for Household Welfare A Dynamic Macroeconometric Stochastic Model
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Date
2011
Authors
Odior, E.S.O.
Banuso, F.B.
Journal Title
Journal ISSN
Volume Title
Publisher
European Journal of Social Sciences
Abstract
This paper explores the household welfare effect of macroeconomic volatility on private
consumption expenditure (PCE) in Nigeria. Methodologically, a dynamic macroeconometric stochastic model was used to analysis the nature of the impacts, where private consumption expenditure is presumed to depend upon changes in various indicators of macroeconomic performances. We empirically mode the relationship between PCE and the macroeconomy with a hybrid model that employs a reduced form coefficients of simultaneous equation models, to capture the dynamic interactions among the data and a structural economic model to describe the contemporaneous relationship between the
variables. The Structural Auto-Regression (SVAR) process including the PCE, real exchange rate, general price level (inflation rate), unemployment rate and debt service
ratio, is estimated over the period 1980-2008. The model ascertained the extent in which
volatility of the macroeconomics does lead to a decline in consumption expenditure. We
find that, the PCE response to structural one innovation appears to be greater in inflation
than other endogenous variables that is, an economic shock to inflation effect is stronger on the private consumption expenditure at longer horizon. Also, inflation innovations play a larger role in explaining PCE forecast error variance in the long run than they do in the
short run and this generates negative net effects on welfare.
Description
Keywords
Macroeconomic volatility , PCE , Macroeconometric Stochastic Model , Nigeria
Citation
Odior, E.S. & F.B. Banuso (2011), “Macroeconomic Volatility and Private Consumption Expenditure: Implication for Household Welfare” A Dynamic Macroeconometric Stochastic Model, European Journal of Social Sciences (EJSS), Volume 20, Number 2, London, United Kingdom, Pp, 319 – 335