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The Permanent and Transitory Effects on Consumption and Income: Evidence from the Turkish Economy

Bilgili, Faik (2007): The Permanent and Transitory Effects on Consumption and Income: Evidence from the Turkish Economy.

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Abstract

This paper, using the Turkish data, employs a VAR model to decompose permanent and transitory shocks on consumption and income. Pistoresi (1997), using USA data, reaches an empirical result that the permanent part of private consumption explains the much of the variance of series, whereas that of income explains the less of variance of series. Corugeda, Price and Blake (2007), using the UK data, have the conclusion that permanent shocks are the dominant effects on variances of consumption and income. Data used for this study is obtained from the Turkish Central Bank EDDS and ranges from 1987:1 to 2006:3. The paper first searches the evidence for consumption literature, then, after monitoring the unit root and seasonality analyses, runs impulse responses and variance decompositions through VAR analyses. At the end of this study, one can reach the relative importance of permanent and transitory impacts on private consumption and GDP of the Turkish Economy.

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