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Revisiting consumption and income relationship: a vector logistic smooth transition regression modelling

Published online by Cambridge University Press:  10 September 2025

Fredj Jawadi Open the ORCID record for Fredj Jawadi [Opens in a new window] ,
Jie Cheng ,
Ruijun Bu ,
Yacouba Gnegne  and
Abdoulkarim Idi Cheffou
Fredj Jawadi
Affiliation:
Univ. Lille, ULR 4999 - LUMEN, F-59000 Lille, France
Jie Cheng
Affiliation:
Keele University, Keele, UK
Ruijun Bu
Affiliation:
University of Liverpool, Liverpool, UK
Yacouba Gnegne
Affiliation:
National Defense College, Abu Dhabi, UAE
Abdoulkarim Idi Cheffou*
Affiliation:
ISG International Business School, Paris, France
*
Corresponding author: Abdoulkarim Idi Cheffou; Email: abdoulkarim.idicheffou@isg.fr
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Abstract

This study revisits the relationship between household consumption and its economic (income, wealth, and interest rates) and behavioural drivers. We specify this relationship while allowing for a threshold effect and a switching regime, which help capture further asymmetry, time-variation, and nonlinearity in this relationship. To this end, we specify a vector logistic smooth transition regression (VLSTR) model, which allows modelling the consumption–income relationship in a nonlinear system and provides more concise estimators. We obtain two interesting results. First, the consumption–income relationship is time-varying, regime-dependent, and it exhibits asymmetry and nonlinearity. Second, while household consumption remains driven by usual factors (income, financial wealth, interest rate, and exchange rate), it is also statistically sensitive to factors (consumer sentiment), and this sensitivity is regime-dependent.

Keywords

consumptionincomewealthconsumer sentimentuncertaintynonlinearityvector logistic smooth transition regression modelC20E21E44

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Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e139
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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