THE CONSUMPTION-INVESTMENT-UNEMPLOYMENT RELATIONSHIP IN SPAIN: AN ANALYSIS WITH REGIONAL DATA
Abstract
In this paper we analyze the consequences of changes in the consumption patterns on unemployment through an intermediate channel via investment. Specifically, after presenting our theoretical framework, we build a dynamic econometric multi-equational model, in which we estimate a consumption function, an investment function and an unemployment rate equation, using a panel of 17 Spanish regions. This model is characterized by its dynamics and the cross equation relationships. After estimating the model, we run a number of dynamic simulations in order to verify our starting hypothesis, namely that temporary and persistent shocks to consumption have long lasting effects on unemployment, both directly and indirectly, through investment. Our results are especially relevant in the current recessive context of the Spanish economy, which is characterized by severe falls in consumption and unprecedented increases in unemployment.
References
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[34] Modigliani, F. and Brumberg, R. (1954). Utility Analysis and the consumption function: an interpretation of cross-section data. In Kurihara, K.K. (Ed.), Post-Keynesian Economics. Rutgers University Press, New Brunswick, 388-436.
[35] Modigliani, F. (1970). The life-cycle hypothesis and inter country differences in the saving ratio in W. A. Eltis, M. FG. Scott, and J. N. Wolfe, (Eds.), Induction, growth, and trade: essays in Honor of Sir Roy Harrod. Oxford University Press, Oxford, 197–225.
[36] Modigliani, F. 2000. Europe's Economic Problems. Prepared for Testimony before the Monetary Committee of the European Central Bank. Mimeo.
[37] Mody, A., Ohnsorge, F. and D. Sandri (2012). Precautionary Savings in the Great Recession. IMF Working Paper, WP12/42.
[38] Pesaran, H., Shin, Y. and Smith R. (1996). Testing for the Existence of a Long Run Relationship”. DAE Working Paper 9622, University of Cambridge.
[39] Pesaran, H. and Shin, Y. (1999). An Autorregresive Distributed Lag Modelling Approach to Cointegration Analysis, in S. Strom (Ed.), Econometrics and Economic Theory in 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge. Cambridge University Press, 371-413.
[40] Rowthorn, R. (1999). Unemployment, Wage Bargaining and Capital-Labour Substitution, Cambridge Journal of Economics, 23(4): 413-425.
[41] Sandmo, A. (1970). The Effect of Uncertainty on Savings Decisions, Review of Economic Studies, 37: 353-360.
[42] Smith, R. and Fuertes, A.M. (2011). Panel Time Series. Mimeo.
[2] Ando, A. and Modigliani, F. (1996). The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests, American Economic Review, 53: 55-84.
[3] Arestis, P. Baddeley, M. and Sawyer, M. (2007). The relationship between capital stock, unemployment and wages in nine EMU countries, Bulletin of Economic Research, 59(2): 125 -148.
[4] Baltagi, B. H. and Kao, C. (2000). Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey, Advances in Econometrics, 15: 7-51.
[5] Baltagi, B.H. (2008). Econometric Analysis of Panel Data, New York: Wiley.
[6] Bande, R. and Karanassou, M. (2013). The Natural Rate of Unemployment Hypothesis and the Evolution of Regional Disparities in Spanish Unemployment. Urban Studies, forthcoming.
[7] Bande. R. and Riveiro, D. (2012). Private Savings and Macroeconomic Uncertainty: Evidence from Spanish Regional Data, MPRA Paper 42647, University Library of Munich, Germany.
[8] Banerjee, A. (1999). Panel Data Unit Roots and Cointegration: An Overview, Oxford Bulletin of Economics and Statistics, Special Issue, 607-629.
[9] Blanchard, O.J. and Mankiw, N.G. (1988). Consumption: Beyond Certainty Equivalence, American Economic Review, Papers and Proceedings, 78: 173-177.
[10] Blanchard, O.J. and Summers, L. (1987). Hysteresis and the European Unemployment Problem. NBER Macroeconomics Annual, 1: 15-77.
[11] Carroll, C.D. (1992). The Buffer-Stock Theory of Savings: Some Macroeconomic Evidence, Brookings Papers on Economic Activity, 2: 61-135.
[12] Drèze, J. and Modigliani, F. (1972). Consumption decisions under uncertainty, Journal of Economic Theory, 5: 308-335.
[13] Dynarski, M. and Sheffrin, S. (1987). Consumption and unemployment, Quarterly Journal of Economics, 102: 411-428.
[14] Fisher, R.A. (1932). Statistical Methods for Research Workers, Edinburgh: Oliver & Boyd.
[15] Friedman, M. (1957). A Theory of the Consumption Function, Princeton University Press.
[16] Friedman, M. (1968). The Role of Monetary Policy, American Economic Review, 58: 1-17.
[17] Hanm, J.H. (1999). Consumption Growth, Income Growth and Earnings Uncertainty: Simple Cross - Country Evidence, International Economic Journal, 13: 39-58.
[18] Hanm, J.H. and Steigerwald, D.G. (1999). Consumption Adjustment under Time-Varying Income Uncertainty, Review of Economics and Statistics, 81: 32-40.
[19] Kapadia, S. (2005). The Capital stock and equilibrium unemployment: a new theoretical perspective. Balliol College, University of Oxford. Department of Economics, Discussion Paper 181.
[20] Karanassou, M., Sala, H. and Savador, P. (2008). Capital Accumulation and Unemployment: New Insights on the Nordic Experience, Cambridge Journal of Economics, 32: 977-1001.
[21] Karanassou, M. and Sala, H. (2012). Productivity Growth and the Phillips Curve: A Reassessment of the US Experience, Bulletin of Economic Research, 64: 344-366.
[22] Karanassou, M., Sala, H. and Snower, D.J. (2010). Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective, Journal of Economic Surveys, 24: 1-51.
[23] Kwiatkowski, D., Phillips, P. C. B., Schmidt, P. and Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series are non - stationary?, Journal of Econometrics, 54: 159-178.
[24] Layard, R., Nickell, S. and Jackman, R. (1991). Unemployment: Macroeconomic Performance and the Labour Market. Oxford University Press, Oxford.
[25] Leland, H. (1968). Saving and Uncertainty: The Precautionary Demand for Saving, Quarterly Journal of Economics, 82: 465-473.
[26] Lindbeck, A. and Snower, D.J. (1987). Union Activity, Unemployment Persistence and Wage-Employment Ratchets, European Economic Review, 31: 157-167.
[27] Lindbeck, A. and Snower, D.J. (1994). How Are Product Demand Changes Transmitted to the Labour Market?, Economic Journal, 104 (March): 386-398.
[28] Loayza, N., Schmidt-Hebbel, K. and Servén, L. (2000). What drives private saving rates across the world?, Review of Economics and Statistics, 82(2): 165-181.
[29] Maddala, G. S. and Wu, S. (1999). A comparative Study of Unit Root Tests with Panel Data and a New Simple Test, Oxford Bulletin of Economics and Statistics, Special Issue, 631-652.
[30] Malley, J. and Moutos, T. (1996). Unemployment and Consumption, Oxford Economic Papers, 48: 584-600.
[31] Malley, J. and Moutos, T. (2001). Capital Accumulation and Unemployment: A Tale of two Continents, Scandinavian Journal of Economics, 103(1): 79-99.
[32] Menegatti, M. (2007). Consumption and Uncertainty: a Panel Analysis in Italian Regions, Applied Economics Letters, 14: 39-42.
[33] Menegatti, M. (2010). Uncertainty and Consumption: New Evidence in OECD Countries, Bulletin of Economic Research, 62(3): 227-242.
[34] Modigliani, F. and Brumberg, R. (1954). Utility Analysis and the consumption function: an interpretation of cross-section data. In Kurihara, K.K. (Ed.), Post-Keynesian Economics. Rutgers University Press, New Brunswick, 388-436.
[35] Modigliani, F. (1970). The life-cycle hypothesis and inter country differences in the saving ratio in W. A. Eltis, M. FG. Scott, and J. N. Wolfe, (Eds.), Induction, growth, and trade: essays in Honor of Sir Roy Harrod. Oxford University Press, Oxford, 197–225.
[36] Modigliani, F. 2000. Europe's Economic Problems. Prepared for Testimony before the Monetary Committee of the European Central Bank. Mimeo.
[37] Mody, A., Ohnsorge, F. and D. Sandri (2012). Precautionary Savings in the Great Recession. IMF Working Paper, WP12/42.
[38] Pesaran, H., Shin, Y. and Smith R. (1996). Testing for the Existence of a Long Run Relationship”. DAE Working Paper 9622, University of Cambridge.
[39] Pesaran, H. and Shin, Y. (1999). An Autorregresive Distributed Lag Modelling Approach to Cointegration Analysis, in S. Strom (Ed.), Econometrics and Economic Theory in 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge. Cambridge University Press, 371-413.
[40] Rowthorn, R. (1999). Unemployment, Wage Bargaining and Capital-Labour Substitution, Cambridge Journal of Economics, 23(4): 413-425.
[41] Sandmo, A. (1970). The Effect of Uncertainty on Savings Decisions, Review of Economic Studies, 37: 353-360.
[42] Smith, R. and Fuertes, A.M. (2011). Panel Time Series. Mimeo.
Published
2013-06-30
How to Cite
BANDE, Roberto; RIVEIRO, Dolores.
THE CONSUMPTION-INVESTMENT-UNEMPLOYMENT RELATIONSHIP IN SPAIN: AN ANALYSIS WITH REGIONAL DATA.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 4, n. 1, p. 5-24, june 2013.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/1174>. Date accessed: 22 dec. 2024.
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