Stochastic properties of the consumption-income ratios in central and eastern European countries

Abstract

This paper aims to investigate stochastic properties of the consumption-income ratios in eleven central and eastern European (CEE) countries: Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. The heterogeneous panel unit root tests are used to account for cross-sectional dependence and the Modified Augmented Dickey-Fuller unit root test over the period March 1997 - September 2012. The half-lives are also calculated as to find the strong mean-reversion in the consumption-income ratio for nine of eleven CEE economies; and the exceptions are Croatia and Slovenia. In other words, empirical findings provide significant support for the existence of hypothesis that the consumption-income ratio is a mean reversion. Accordingly, the policy implications have permanent effects on the consumption of households only in Croatia and Slovenia.