Title:
ADAPTIVE EXPECTATIONS AND PARTIAL ADJUSTMENT MODELS FOR INCOME AND HOUSEHOLD CONSUMPTION IN ALBANIA

Authors:
Dr. Myslym OSMANI, Dr. Mira ANDONI, Dr. Arben KAMBO, Msc. Aida MOSKO

Volume - 2 Issue - 10, Pages - 4783-4795

Abstract:
This is a study on income and consumption expectations in Albania. Based on time series data for both variables for the time horizon 1996-2015, we make use of econometric modeling to identify how expectations of Albanian consumers about income and consumption are formed. We use the classical model as well as adaptive expectations (AE) and partial adjustment (PA) hypothesis. These hypothesis seem to have lost ground over years against the competitive hypothesis of rational expectations (RE), but still useful as many authors argue. In our research we try to discuss why AE is useful and bring evidence in its favor. Empirically the classical model shows that in aggregate Albanians tend to consume about 70 percent of their income. The models show that consumers each year adjust their income expectations by about 53 percent of the gap between current and last year's income expectation. The short run effect of income on consumption or short run marginal propensity to consume is about 0.41 ALL for each increase of one unit in expected income. The long run effect of income is about 0.782 ALL for one unit increase in income.

Cite this Article:

[OSMANI, Myslym, et al. "ADAPTIVE EXPECTATIONS AND PARTIAL ADJUSTMENT MODELS FOR INCOME AND HOUSEHOLD CONSUMPTION IN ALBANIA." International Journal of Social Science and Economic Research, vol. 2, no. 10, 2017, pp. 4783-4795. October.]