Household Expectations and Household Consumption Expenditures: The Case of Turkey

The empirical analysis confirms that household expectations have a direct role on their consumption and saving behaviour in addition to their indirect influence through the income channel. The econometric results show that there is a positive and statistically significant relationship between the growth of consumption and expected income changes. Therefore, the strict version of the rational expectations permanent income hypothesis (REPIH) is rejected for the Turkish economy. The empirical analysis reveals that the expansion of the real consumer credit volume is more important on the growth of consumption than the real interest rates. Moreover, there is a positive and statistically significant relationship between the Job Opportunities Index from the TURKSTAT-CBRT Consumer Tendency Survey and the growth of consumption. Household expenditures on durable goods are more sensitive to changes in household expectations, the real interest rates and consumer credits than household expenditures on non-durable goods and services. As a result, the econometric results are in favour of the precautionary saving hypothesis.