Empirical Modeling of Long-term Interrelations and Short-term Dynamic Adjustments of Private Consumption in Ukraine
In view of economic instability in Ukraine, it’s getting more and more relevant to study macroeconomic interrelations that would not only be based on long-term equilibrium trends, but at the same time would also represent the dynamic response of variables to shocks affecting the economic environment. The paper is aimed at an empirical study of long-term interrelations and a short-term adjustment mechanism when making consumer decisions by households in Ukraine. The paper presents a statistical analysis of the dynamic properties of the series of consumption, income and inflation. The paper also defines the stochastic trend and stochastic seasonality, it tests the existence and direction of causality in the interrelations, as well as it substantiates and estimates the cointegrating long-term equilibrium interrelation. Basing on the detected cointegration of the studied series, we developed an econometric dynamic error correction model that includes economic equilibrium relations derived from macroeconomic theory and also allows to model short-term effects of various factors on the rate of consumption change, such as changes in the rate of growth of income, changes in savings rates over the previous year, seasonality and deviations from a long-term equilibrium resulting from unanticipated shocks in the economy. The developed ECM-model is well-suited to predict changes in the levels and dynamics of fluctuations of the actual values of consumption and also has practical application in assessing and predicting the response of consumption, and thus aggregate demand, in making political and economic decisions both in a long-term perspective and in short-term adjustments.