[Journal:] Zagreb International Review of Economics and Business [ISSN:] 1331-5609 [Volume:] 18 [Issue:] 1 [Pages:] 81-89
In this paper, an econometric model of consumption in Bulgaria for the period 1997-2005 is constructed. The Error-Correction Model (ECM) approach is employed and long-run relationship between household consumption and income was found. The primary purpose of this empirical paper is to get a better understanding of the factors driving household consumption in Bulgaria and to estimate a consumption function to be used for medium-term forecasting. It is shown that all households behave in a Keynesian way, basing their consumption decisions on current income.
Keynesian consumption function Permanent Income Hypothesis Error Correction Model