CONSUMPTION FUNCTION FOR INDIA: A STUDY THROUGH GROWTH, BREAK AND FLUCTUATION
Sukla Mondal Saha
Majority of macroeconomic variables exhibit growth (or logarithmic trend), breaks in different policy regimes and fluctuations of various types around the growth path. One or more of these components make the variables non-stationary. If one such variable is linearly dependent on another, non-stationarity of the latter is transmitted to the former and the linear combination of them implied by the linear dependence mentioned above becomes stationary or at least less non-stationary and the variables are said to be cointegrated. After observing that consumption and income series for India for the period 1950-51 to 2009-10 are cointegrated with income as a significant Granger cause of consumption, this paper tries to examine how growth, break and fluctuation in income can explain those in consumption. For pursuing this objective, especially for evaluating growth, break and fluctuation in a macroeconomic variable, this paper uses a methodology obtained from the methodologies developed by Cuddy-Della Valle (1978), Della Valle (1979), Coppock (1962) and Bai-Perron (1998, 2003), and used in Mondal and Mondal Saha (2008). This study helps us having a fresh look on the nature of consumption function for India in the period 1950-51 to 2009-10.
KEYWORDS: growth, production, income, expenditure, Consumption Expenditure