The Private Consumption Function in Saudi Arabia

This paper empirically estimates the critical parameters of private consumption function in Saudi Arabia for the period 1986-2008 by using dynamic ordinary least squares (DOLS) approach of Stock and Watson (1993). The analysis is based on time series from 1986 to 2008. Time series properties of the processes that generate the data be assessed to specify the order of integration for each series to satisfy the conditions of applying the DOLS procedure. The empirical results confirmed that there exists a significant relationship among the real private consumption in Saudi Arabia and both of real income and real interest rate, but an insignificant relationship with financial wealth . Our estimation results show that all variables have its theoretical expected sign (positive for real income and financial wealth, but negative for real interest rate)