An Assessment of the Consumption Function for Iran

Abstract

In this study, the real private consumption model for Iran was estimated by applying yearly data from 1990 to 2018. The ARDL method is used to assess short-term and long-term relationships between private consumption, labor income, interest rate, wealth, and unemployment rate. According to long-term estimates, income and wealth determine the actual consumption in Iran. However, in the short run, current incomes, wealth, real interest rates, and the unemployment rate are the key determinants of private consumption in Iran. The dynamic of the consumption function shows that all the factors of consumption i.e. real disposable income, wealth, and unemployment rate, real interest rate, have a noteworthy effect on aggregate consumption. The minor and significant coefficient of wealth indicates that the consumption decision is weakly affected by wealth. It provides evidence of the validity of AIH for Iran.