The Estimation ofAggregate Consumption Function for High Income Countries

Aggregate Real Private Consumption (ARPC) is one of the major components of the Gross  Domestic Product (GDP)that contributes to specify any economy’s long term living standards. The  contribution of ARPC stands on an average around 55%. It is therefore important to understand the  components of the consumption which is almost more than half of the aggregate economic expenditure.  The study is an attempt to make a case for developing countries to bring policy level changes in order to  determine the consumption pattern of developing countries’ GDP. Using appropriate empirical model the  study investigates the validity of Permanent Income Hypothesis (PIH) and Absolute Income Hypothesis  (AIH)on ARPC for selected developed economies. The results of the study reveals that the important  determinants of ARPC in the long-run are real GDP and wealth, while in the short-run they are real  interest rate and unemployment rate.