Journal of Economics and Development Studies

The Response of Consumption to Alternative Measures of Financial Development and Real Interest Rate in a Sample of Central and East European Countries
Serhan Çiftçioğlu, Maryam Almasifard

Abstract
The paper focuses on investigating the relationship between (gdp share of) consumption and, two alternative measures of financial development and real interest rate using a sample of eight Central and East European countries for the period of 1993-2010. The panel estimation of two alternative regression equations for consumption suggested that the direction of the net effect of financial development on consumption can vary depending on the measure of financial development chosen. Specifically we found out that while the ratio of broad measure supply of money supply (M2) to gdp has a negative (and statistically significant) effect on consumption, the effect of the ratio of domestic credit to gdp is positive but statistically insignificant. Furthermore, the estimation results have produced evidence of a positive (and statistically significant) effect of real interest rate on consumption. And finally the per capita real gdp and growth rate of real gdp have been found to be (statistically) insignificantly associated with consumption.

Full Text: PDF     DOI: 10.15640/jeds.v3n1a1