Estimating Aggregate Consumption Function Using Random Coefficient Approach: The Australian Case

We estimate a Friedman type consumption function incorporating varying coefficient approach to investigate the changing pattern of consumer responses in Australia using quarterly data from 1959IV to 1988IV. The methodology used was that of Hildreth and Houck (1968), Singh et al (1976) and Hogue (1988b). - The Lagrange multiplier test conducted supports the hypothesis of randomness in the response coefficients, suggesting the use of a random coefficient technique rather than an OLS method in estimating our model. We also extended the model by considering separate treatment for both random and the systematic changes in the structural parameters. Our study clearly indicates a strong stickiness in consumer habits and the results also imply that the consumers tend to adapt to changes in income more and more quickly