Marginal Propensity to Consume in Hungary: The long-term versus Short-term Challenges to Policy Makers

Keith Write,Garry Smith,Arpita Shroff

doi:10.15549/jeecar.v4i2.167

Abstract

This study uses Hungarian quarterly data from the International Monetary Fund to estimate a distributed lag model whose coefficients allow derivation of the short-run and long-run marginal propensities to consume. MPCs are main factors determining the consumption, investment, government spending, and export and import multipliers of the economy. Hungary's economy has stagnated and its policy makers are exploring new ways to manage its economy. Our model reveals that the numerical value of Hungarian short-run marginal propensity to consume (MPC) is 0.4081181655 and the long-run MPC is 0.9458619. These results are consistent with the corresponding figures in emerging and advanced economies. These derived MPCs suggest that Hungarian economic policy makers should use fiscal instruments to bring these macroeconomic variables back to their long-term trend effectively

Highlights

After more than a decade of growth, Hungary's economy has stagnated and its policy makers are exploring new ways to manage its economy
It should be noted here that equation (4) is the reduced form of the indefinite distributed lag model expressed in equation (1); β1 is the sum of all the impacts of a change in xt on yt in all subsequent periods
As articulated by Green (2008, p.132), in this specification, β1 is the short-run marginal propensity to consume ( Marginal propensity to consume (MPC) )

Summary

Introduction

After more than a decade of growth, Hungary's economy has stagnated and its policy makers are exploring new ways to manage its economy. We found no previous empirical investigation into the magnitude of the Hungarian short-run and long run MPC. To fill this literature gap, this study uses available Hungarian quarterly data to estimate a distributed lag model whose coefficients allow derivation of the short-run and long run MPC. Every economy experiences periods of instability in the midst of growth and progress. All economies worldwide have encountered both internal and external shocks. Many economies have been destabilized due to improper implementation of public policies. Cyclical fluctuations in economic activities have resulted in both periodic increases in unemployment, inflation and in disequilibria in the external sector (Gbosi, 2001)

Objectives

Methods

Findings

Conclusion