Consumption and macroeconomic policies

Abstract

PurposeThe paper aims to examine asymmetry in the cyclical behavior of private consumption in a sample of nine developing countries in the Middle East.Design/methodology/approachThe empirical model includes three policy variables: government spending, the money supply, and the exchange rate. Anticipated movements in these variables are likely to vary with agents' forecasts of macroeconomic fundamentals and, therefore, determine planned consumption. Unanticipated policy changes, in contrast, determine cyclical consumption.FindingsThe results indicate that fluctuations in private consumption are mostly cyclical. The stabilizing function of policy shocks varies across countries and appears to be asymmetric within countries.Originality/valueAsymmetry necessitates a thorough evaluation of the positive and negative effects attributed to changes in policy variables and the necessary reforms to relax binding constraints.