CONSUMPTION AND GROWTH FROM A RICARDIAN PERSPECTIVE *

Nazim Kadri Ekinci

Metroeconomica, 2009, vol. 60, issue 4, pages 638-659

Abstract: A new way of imposing the Ricardian closure is proposed through a dynamic consumption function along Keynesian lines. The dynamic consumption function relates consumption to current income and to the accumulated stock of consumer durables. In this way the dynamics of consumption and effective demand become dependent on consumer spending on durables. Using the dynamic consumption function within a simplified Harrod-Domar growth framework, it is shown that there is no independent consumption function in the long run as the Ricardian closure implies. The long-run propensity to consume is an equilibrium relation, not a behavioural parameter. Copyright © 2008 The Author. Journal compilation © 2008 Blackwell Publishing Ltd.

Date: 2009

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