Real Private Consumption Modeling of Pakistan

Abstract

This study estimated the real private consumption model for Pakistan
by using the annual data from 1971 to 2013. The Autoregressive distributed lag
model is used to investigate the short run and long run relationship between private
consumption, labor income, wealth, interest rate and unemployment rate. In the
short run, current income, wealth, real interest rate and unemployment
rate affected the real private consumption growth while in the long run labor
income and wealth are significant. The numerical value of the coefficient of error
correction model (ECM) is -0.58, which propose that Pakistan’s real private
consumption converge from disequilibrium in period (t-1) to equilibrium (t) on a
high speed.