Determinants of Private Consumption Expenditure in Egypt: ARDL Study

Abstract

This paper studies the relationship between private consumption expenditure and independent variables that include GDP, population number, interest rate, and inflation rate in Egypt during the period from 1955 to 2022 using the Autoregressive Distributed Lag Model (ARDL). The research also aims to study the effect of displacement between private consumption spending and government consumption spending using a model (ARDL). The study found that there is a positive and significant relationship between private consumption spending and both output and population in the long run. In the long run, a 1% increase in GDP is associated with a 0.8% increase in private consumption spending, and a 1% increase in population is associated with a 0.3% increase in private consumption spending. However, there is an inverse and significant relationship between private consumer spending and both interest rates and government consumer spending in the long run. In the long run, a 1% increase in the interest rate is associated with a 0.2% decrease in private consumption spending, and a 1% increase in the inflation rate is associated with a 0.1% decrease in private consumption spending. In the short term, there is a positive and significant relationship between private consumption spending and both output and population. In the short term, a 1% increase in GDP is associated with a 0.6% increase in private consumption spending, and a 1% increase in population is associated with a 0.2% increase in private consumption spending. However, there is an inverse relationship between consumer spending Private and short-term interest rate. In the short term, a 1% increase in the interest rate is associated with a 0.1% decrease in private consumption spending. The findings of this study suggest that the central bank can use monetary policy tools in order to influence the intermediate objective of monetary policy and influence private consumer spending and aggregate demand. Taxes can also be used as one of the fiscal policy tools to influence disposable income in order to change private consumer spending and aggregate demand.