The Effect of Economic Shocks on the Consumption Iranian Households

Document Type : Research Paper


1 Assistant professor of Bu-Ali Sina university,Department of Economics

2 Ph.D candidate in Economics, Bu-Ali Sina University, Department of Economics


The purpose of this study is to investigate the the permanent and transitory components of household income, liquidity (money) and government expenditures to identify economic shocks affected the household consumption in Iran. For this target, using the univariate stochastic detrending approach proposed by Beveridge and Nelson (BN), we decompose the time series data of these variables over the period (1974-2014) into permanent and transitory components. Using the technique of ARDL, the effects of the permanent and transitory of the shocks on households' consumption are studied. The paper results show that there is positive and significant relationship between household consumption and temporary and permanent income shocks and permanent liquidity shocks, whereas a significant and negative relationship with permanent government spending shocks in Iran. Thus, the fiscal, monetary and income government policies should be in a way that keep the permanent income of Iranian households from any destructive shock on economy.
JEL Classification: D31, D91, E21


Main Subjects

احمد، مولود، تشکینی، احمد و سوری، امیررضا (1387). تخمین تابع مصرف بخش خصوصی در ایران. ­ پژوهشنامه اقتصادی، 8 (28)، 15-3.
اشرفی‌پور، محمد علی (1393). آثار سیاست‌های مالی بر مصرف بخش خصوصی در ایران، مجله اقتصادی، 13 (7و8)، 72-51.
امامی، کریم و دربانی، سمن (1390). عوامل مؤثر بر مخارج مصرفی کالاهای بی‌دوام در اقتصاد ایران  .فصلنامه‌ی مدل‌سازی اقتصادی، سال پنجم، 2، 91-110
رضایی‌پور، محمد و آقایی خوندابی، مجید (1390). اثر شوک‌های مخارج یارانه‌های دولت بر مصرف واقعی بخش خصوصی ایران­ .فصلنامه‌ی پژوهش‌ها و سیاست‌های اقتصادی، 60 ، 139-160.
زراء نژاد، منصور (1382). تخمین تابع مصرف کالاهای مصرفی برای دو گروه خانوارهای شهری و روستایی ایران در دوره (1353-1377). فصلنامه‌ی پژوهش‌های اقتصادی ایران، 3(5)، 23-46.
فخرایی، عنایت الله و منصوری، سید امین (1388). برآورد میل نهایی به مصرف در گروه‌های درآمدی براساس فرضیه درآمد دائمی نسبی در ایران. مجله‌ی دانش و توسعه، 17(29)،21-38.
صمدی، علی حسین و سیدی، سید محمد (1391). بررسی تأثیر مخارج دولت بر مصرف خصوصی با توجه به آثار جبرانی مخارج دولت: کاربردی برای ایران. فصلنامه‌ی تحقیقات مدل‌سازی اقتصادی، 2 (8) ، 86-57.
مرکز آمار ایران (1393). نتایج آمارگیری از هزینه و درآمد خانوارهای روستایی و شهری در سال‌های 1393-1353، تهران: مرکز آمار ایران.

Abowd, J.M., & David .C. (1989). On the Covariance structure of Earnings and hour changes. Ecomoetrica. 57,411-445.
Altunc, Omar Faruk and Aydin, Cell (2014). An Estimation of the Consumption Function under the Permanent Income Hypothesis: The case of D-8 Cuntries. Journal of Cooperation & Development, 35(3), 15-32.
Attanasio, O. P., & Szekely, M. (2004). Wage Shocks and Consumption Variablity in Mexico during the 1990. Journal of Development Economics, 73(1), 1-25.
Baiely, M. (1971). National Incime and the Price Level­. McMgreaw-Hill.
Banerjee, A., Dolado, J., Galbraith, J., & Hendry­, D. (1993). Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data. Oxford Scholarship on line, November 2003.
Baxter, M., & King, R. (1993). Fiscal Policy in General Equilibrium. American Economic Review, 83(1): 315-334.
Berben, R.P., & Brosens, T. (2007). The Impact of Government Debt on Private Consumption in OECD Countries. Econonics Letters, 94 (2), 220-225.
Beveridge, S., & Nelson, C. R. (1981). A New Approach to Decomposition of Economic Time Series into Permanent and Transitory Components with Particular Attention to Measurement of the Business Cycle. Journal of Monetary Economics, 7(2), 151-174.‏
Blundell, R.; Luigi, P., & Ian P. (2008). Consumption Inequality and Partial Insurance. American Economic Review, 98, 1887–1921.
Blundell-Wignall, A., Browne F., & Manasse P. (1990). Monetary Policy
in Liberalised Financial Markets. OECD Economic Studies, No.       
Blanchard, O., & Quah.D. (1989). The Dynamic Effects of Aggregate Demand and Supply Disturbances. American Economic Review. 79, 655-673.
Browing, M., & Ejrnaes, M. (2013). Heterogeneity in the Dynamics of Labor Earning. Annual Review of Economics, 5 (1).219-245.
Casado, J. M. (2011). From Income to Consumption: Measuring Household’s Partial Insurance. Empirical Economics, 40(2), 471-495.
Cho, S. (2011). Housing wealth Effect on Consumption: Evidence from Household Level Data. Economics Letters, 113: 192–194.
Choi, H.; McGarry, K., & Schoeni, R. (2015). Liqulity Consumption, the Extended Family, and Consumption. Working paper320, Michigan Retirement Research Center, University of Michigan, Ann Arbor, MI48104.
Dalessandro, A. (2010). ­How Can Government Spending Affect Private Consumption? A Panel Cointegration Approach. European Journal of Economics, Finance and Administrative Sciences, 18 (1): 40-57.
Davis, S. J., & Palumbo (2001). Sectoral Job Creation and Destruction Responses to Oil price changes. Journal of monetary economics, 48(3), 465-512.
Deaton, A., & Paxson, C. (1994). International Choice and Inequality. Journal of Political Economy, 102 (3), 437-67.
Di Maggio, M., Kermani, A., & Ramcharan, R. (2014). Monetary Policy pass-through: Household Consumption and voluntary Deleveraging. Columbia Business School Research Paper, (14-24).
Evans, P., & Georgios K. ­(2007). Liquidity Constraints and the Substitutability   between private and government consumption. Economic
 Inquiry, 36(2):203-214,
Falk, B., & Lee, B. S. (1998). The Dynamic Effects of Permanent and Transitory Labor Income on Consumption. Journal of Monetary Economics, 41(2), 371-387.
Flavin, M. (1981). The adjustment of consumption to changing expectations about future income. Journal of Political Economy, 89, 974–1009.
Friedman, M. (1957). A theory of the consumption function. Bureau of Economic Research. Princeton university press, 63, 157-182.
Gali.J, Lopez-Salido, J.D., & Valles, J. (2004). Rule-of-­Thumb Consumers and the design of Interest Rate Rules. Journal of Money, Credit and Banking, 36(4):739-764.
Gianazzi, F., & Pagano, M. (1990). Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries. NBER Macroeconomics, Annual, 5, 76-122.
Hall, R. E., & Mishkin, F. S. (1982). The Sensitivity of Consumption to TransitoryI: Evidence from PSID Households. Econometrica, 50(2), 461–481.
Horvath, M. (2009). ­The Effects of Government Spending Shocks on Consumption under Optimal Stabilization. European Economic Review, 53 (7), 815-829.
Im, K.S., Pesaran, M.H., & Shin, Y. (1997). Testing for Unit Roots in Heterogeneous Panels. Mimeo, Department of Applied Economics, University of Cambridge, Working Paper, No. 9526.
Hollweg, C. H. (2014). Essay on the Transmission of Economic Shocks (Doctoral Dissertation). https://digital.
Jimenez, G., Ongena, S., & Peydro, J. L. (2012). Credit supply and monetary policy: Identifying the bank balance-sheet channel with loan applications. The American Economic Review 102(5), 2301–2326.
Johnson, D. S., Parker, J.A., & Souleles, N. S. (2006). Household Expenditure and the Income Tax Rebates of 2001. American Economic Review, 96(5), 1589-1610.
Lettau, M., & Ludvigson, S. C. (2004). Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption. The American Economic Review, 94 (1), 276-299.
Ludvigson, S., & Steindel, C. (1999). How Important is theshock Market Effect on Consumption? Economic Poilcy Review, 1(1), 29-51.
Kassaipour, N., Taghavi, M., & Ghadimi, M. (2012). The Effect of Fiscal Policy in Terms of Government Spending on Private Consumption in Recessions and Booms in Iran. Management Science Letters, 2(7), 2521-2524.
Kaplan, G., Violante, G. L. (2010). How Much Consumption Insurance beyond Self- Insurance? American Economic Journal, 2(4), 53-87.
Khanfir, W. (2016). Threshold Effect of Fiscal Policy on Private Consumption Function of Iran: Autoregressive Distributed Lag Approach to Co-integration. International Journal of Economics and Financial Issues, 6 (2), 653-659.
Kyland Finn E., & Proscott Edward C. (1982). Time to Build and Aggregate Fluctuations. Econometrica, 50 (6), 1345-1370.
Mehra, Y. P., & Petersen, J. D. (2005). Oil prices and consumer spending. FRB Richmond Economic Quarterly, 91(3), 53-72.
Mian, A., Rao, K., & Sufi, A. (2013). Household Balance Sheets, Consumption, and the Economic    Slump. The Quarterly Journal of Economics, 128(4), 1687-1726.
Nakagawa, S., & Oshima­, K. (2000). Does a Decrease in the Real Interest Rate Actually Stimulate Personal Consumption? An Empirical Study, Bank of Japan Working Paper Series, 2, 1-12.
Nelson, C., & Plosser, C. (1982). Trend and Random Walks in Macroeconomic Time Series­: Some Evidence and Implications. Journal of Monetary Economics, 10 (2), 139-162.
Parker, J. A., Souleles, N. S., Johnson, D. S., & McClelland, R. (2013). Consumer Spending and the Economic Stimulus Payments of 2008. The American Economic Review, 103(6), 2530-2553.
Peltonen, T.A., Sousa, R.M., & Vansteen Kiste, I. S. (2012). Wealth Effect in Emerging Market Economics. International Review of Economics and Finance, 24,155-166.
Romer, C.D., & Romer, D.H. (2000). Monetary Policy and the Well-being of the Poor. NBER Working paper 6793, Cambridge, MA, National Bureau of Economic Research.
Shirvani, H., & Wilbratte, B. (2009). The Permanent Income Hypothesis in five Major Industrial Countries: a Multivariate Trend-cycle Decomposition Test. Journal of Economics and Finance, 33(1), 43-59.‏
Quijano, M. (2013). Consumption, change in Expenditure and Equity Returns. Applied Financial Economics, 23(24), 1839-1851.
Wang, L., & Gao, W. (2011). Nonlinear Effects of Fiscal Ploicy on Private Cosumption: Evidence from China. China & World Economy. 19(2), 60-76.
Wang, Y. S. (2013). Oil price effects on personal consumption expenditures. Energy Economics. 36, 198-204.
Wenjin, K., & Li, N. (2011). ­Liquidity Premium and Consumption. fa 2011/1419739.
Yazdan, F. G., & Sina, M. (2013). The Testing of Hall's Permanent Income Hypothesis: A Case Study of Iran. Asian Economic and Financial Review, 3(3), 311-318.
Zarra-Nezhad, M., Saeidi, S. N., & Mansoury, S. A. (2011). Estimation of Nonlinear Marginal Propensity to Consume in Iran. European Journal of Economics, Finance and Administrative Sciences, 41, 65-72.
Zeldes, Stephen P. (1989). Optimal consupmtion with Stochastic Income­:  Deviations from Certainly Equivalence. The Quarterly Journal of Economics, 104 (2), 275-298.
Zhang, Y., & Wan, G., H. (2002). Household Consumption and Monetary Policy in China. China Economic Review, 52-69.