ANALYSIS THEORETICAL MODEL OF THE CONSUMPTION FROM THE GROSS DOMESTIC PRODUCT

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1 ANALYSIS THEORETICAL MODEL OF THE CONSUMPTION FROM THE GROSS DOMESTIC PRODUCT Prof. Constantin ANGHELACHE PhD. Marius POPOVICI PhD. Student Bucharest University of Economic Studies Abstract Analysis and prediction of the fi nal consumption represent important aspects of macroeconomic view. Results of these approaches will help structuring realistic macroeconomic policies. With the view to produce solid models of fi nal consumption, simple linear regression function, as well as multiple regression function were used, with the conclusion that the multiple regression function has no risk and its productivity is quite high.the indicators used have a signifi cant infl uence on the development of the gross domestic product with the effect of a practical correlation between them and GDP. By stimulating any of them GDP will grow. As a conclusion, the multiple regression function represents a valuable theoretical and methodological instrument. Key words: indicator, macroeconomy,consumption, GDP, expenses, econometry, regression function. Introduction The macroeconomic final consumption analysis and forecast represents a fundamental research activity with direct impact on the socialeconomic strategy structuring. As macroeconomic aspect, consumption is closely related to the aggregated demand and to the economic growth. This places the consumption concept in the center of any macroeconomic analysis. We consider that consumption analysis within the framework of the gross domestic product may help reach some basic clarifications regarding important aspects of the efficiency of economic decisions and social needs. The Main Aspects Regarding Measuring of the Macroeconomic Results The National Accounts System represents a valuable data source on Romanian macroeconomy. The system centralizes and manages an impressive data base. Its purpose is the simplified, complete and coherent aggregate quantitative representation of the macroeconomic activity accomplished during one calender year. The consumption from gross domestic product needs a particular conceptual treatment. For this reason indicators like GDP, gross and net Revista Română de Statistică - Supliment nr. 11 /

2 national product, national income, available income and personal income of the population, represent the source of an important conceptual, methodological, notional synthesis regarding macroeconomic modelling activity. The gross aspect of any economic concept and indicator includes fix capital consumption and any aspects of return with regard to the final production calculation. the net aspect of any indicator is used when the fix capital consumption is eliminated from the the final production calculation. Introducing product or income created by the economic egants within the national economic concept is conditioning the calculation of the domestic indicators, called national. Methods and Models for Consumption Analysis Highlighting the population consumption within the analitical context proposed by us considers the analysis of the total household expenses evolution between The gross domestic product measures the gross market value of the goods and services final production during calculation period of time considered by the domestic economic agents. Gross domestic product results as difference between gross domestic product and the medium consumption, the latter being the value of the entries within production and being identified within the value of the final market productss. The size of the gross domestic product and of all other macroeconomic results indicators may be calculated using three different methods leading finally to the same result. For exemple,we use of of these methods, the production method that considers VABicummulation of the internal economic subjects, and finally its aggregation on sectors and globally. The gross value- added represents the sold of the production account and the new created value in the production process. VABi is the net result of the production corresponding to a branch of the national economy. VABi expresses the difference between GP and the medium consumption C i1. By summing up the gross value-added created within the economyțs branches it is got the gross value-added for the global economy. GDP is realised using the relation n GDP pp = VAB ipf +Ip +TV SP i= 1 The dynamics of the populationțs consumption demand is realized through the data furnished by the Family Budgets Inquiry. Thus, it is obtained an analysis of a creditworthy demand regarding the main household categories, the structure of their consumption expenses depending on their nature and the size of incomes and of the main tendencies and changes in the structure of demand. These pit into light the relation between consumption and incomes and the way incomes and prices influence consumtion. 58 Romanian Statistical Review - Supplement nr. 11 / 2015

3 The Use of Econometric Models in Econometric Analysis In order to analyse and forcast consumption use of linear regression seems to be suitable. We obtained a first correlation between GDP and the final consumption by using the annual data for the time between To deflate the two macroeconomic indicators was necessary in order to guarnaty data compatibility. We used the indices of the consumption prices and the EViews 7.2 programme which used the method of the smallest squares as instrument to estimate the parameters of this model, thus obtaining a direct linear connection highly intense between the two variables. In the same way, we analyzed the correlation between the GDP and the public consumption. The model of unifactor regression is used to determine the private consumption influence on final consumption, and the public consumption influence on final consumption as well. these show that final consumption variation is explained by the private consumption level at 99.26%. We conclude that change in final consumption represents a major aspect for change in the final consumption. As to the second analysis, change in public consumption affects the final consumption with only 22.13% percentage. It follows that, public consumption does not represent a decisisve aspect regarding final consumption variation. Econometric Models Use in Macroeconomic Analyses In order to get analyses and forcasts of the consumption, using simple linear regression seemed to be the best theoretical choice. WE made a correlation between GDP and the final consumption by using annual data for the time between 1990 and Deflation of the two macroeconomic indicators was necessary in order to be able to compare with each other when necessary. Thus, we used the consumption prices and EViews 7.2 programme with the method of the smallest squares implemented, and we obtained a direct linear connection with high intensity between the two studied variable. The same for the correlation between GDP and public consumption. The unifactor regression model used to decide the private consumption influence on the final consumption, and the public consumption influence on the final consumption as well, indicate that the final consumption variation can be explained by the private consumption level at a rate of 99.26%. As a conclusion, the variation of the private consumption represents a decisive aspects in variation of final consumption. In a second analysis, public consumption influences the variation of the final consumption with only 22.13% percentage. As a conclusion, the public consumption does not represent a decisive aspect for the variation of the final consption. Revista Română de Statistică - Supliment nr. 11 /

4 Multiple Regression Model and Consumption Analysis The multiple linear regression function represents an important theoretical subject implying further theoretical development like Akaike criterion used in analyses through multiple regression. We used this this model by identifying the practical possibilities in analysing consumption within the GDP. Previously, we showed that the simple linear regression is useful for couples of two variables when analysing GDP. We extended regression method to more than two causal variables.in our approach, we started with elements specific to the method of final production expenses method as source of important information regarding the main correlations influencing the evolution of the macroeconimic aggregate. The multiple linear regression may be used also for the Romanian economy as a whole when analysing the private and public consumption within GDP, when GDP is defined as resulted variable, and the private and public consumption are causual variable. IN order to guaranty comparison of data, we deflated the macroeconomic indicators for the time between 1990 and 2014 using the consumption price indices. Deflating was realized by using EViews 7.2. This method allows multiple correlations as GDP and resulted variable and final consumption correlation; gross investments and factor variables correlation; GDP, resulted variables and final consumption correlation; gross investments, stocks variation and net export and factor variables correlation; GDP, resulted variable and private and public consumption, gross investments, stock variation net export and available gross income of the population households, factor variables. Use of multiple linear regression allows the evolution analysis of the GDP and variables included in the model, while establishing their importance for the general variation of GDP. The mutifactor linear regression may be used also in order to model the final consumption econometrically explaining the private and public consumption through the final consumption; correlation between the final consumption as resulted variable and the available national gross income and the investment as factor variables. All these allows to analyse the evolution of the final consumption, as well as the elements included, valuing the influence of each indicator on the final consumption. Use of the multifactor reggression model indicates that its results are more conclusive as regard to the unifactor regression model, allowing approaches of the dynamics of the national economy. Econometric Models and the Complex Analysis of the GDP When analysing the dynamics and forcast the final consumption within GDP, the analysor will make use of a series of econometric model like balance models and autoregressive models. For example, concep[ts regarding 60 Romanian Statistical Review - Supplement nr. 11 / 2015

5 simplification theory and construction of congruent models proved to be useful when issuing the principles of household sector modelling. Structuring models by combining subsystems and using Phillips curve model represents other useful means for macroeconomic modelling. GDP, final consumption and components analysis by using simple and multiple linear regression function leads us to the following conclusions: Global economy evolves by steady growing of the complexity of all specific processes imposing new models as the whole develops; The growing complexity of the macroeconomic analysis is favoured by new theoretical approaches and sciences like statistics, economic statistics, economic or econometric modelling, and many other specialized informatic applications; Obtaining the value of the main macroeconomic indicators offers subjects for multiple analises that might identify the performances of an economic system; Combined use of the result indicators and of the econiometric models allows complex structures of local, regional, national or international economic models. Conclusions Between GDP and the final consuption in Romania ( ) there is a direct and significant correlation. The results might be explained by the tendecy to use private and public consumption as the basic means to ensure the growth of economy. Durind the period mentioned above, an intense promotion of stimulating consumption policy may be observed, as a mean to grow GDP. This should be correlated with other macroeconomic policies. GDP evolution is influenced by gross fix capital generation. This capital grows as consequenceof stimuting investments, with the effect of GDP growth. Also, the net export might influence the general evolution of GDP. A negative value of external trade balance will lead to an important diminishing of the main macroeconomic aggregate which supposes the stimulation of the exports as an efficient mean to produce GDP growth. Another conclusion refers to the the fidelity of the the multiple regression model, able to reflet the relation between a resulted variable and a group of explanatory variables. Similarly to simple regression, the analysisby means of multiple regression takes into account establishing some fundamental hypotesis and the setting of model s parameters by the smallest squares method. We used these multiple regression models with GDP as resulted variable, and as regressors the final, private and public consumption, gross fix capital generation, stock variation and net export. Multiple regression model Revista Română de Statistică - Supliment nr. 11 /

6 has a very high probability, and the risc degree id theoreticly nul, with the conclusion that it may be used successfully in the macroeconomic analysis. The mai measures adopted for the GDP growth are stimmulation of private and public consumption, growth of the value of the gross fix capital generating through investments, including foreign investments, and maintaining a normal foreign trade balance through coherent policies of export stimulation. References 1. Anghelache, C. (2004) - Sistemul European al Conturilor note de curs, Ed ARTIFEX, București 2. Anghelache, C. (2008) Tratat de statistică teoretică și economică, Editura Economică, București 3. Anghelache, C., Capanu, I. (2003) - Indicatori macroeconomici calcul și analiză economică, Editura Economică, București 4. Anghelache, C., Anghelache, G.V. (2013) Macroeconomic Models Used in the Structural Analysis of the Gross Domestic Product, Romanian Statistical Review, Volume (Year): 61, Issue (Month): 1 (February), pages: Anghelache, C, Mitruț, C. (coordonatori, Bugudui, E., Deatcu, C. (2009) Econometrie Teorie studii teoretice și practice, Editura ARTIFEX, Bucuresti 6. Anghelache, C., Mitruț, C., Voineagu, V. (2010) Sistemul conturilor naționale. Sinteze și studii de caz, Editura Economică București 7. Anghelache, C., Anghel, M.G., Sacală, C. (2014) The Gross Domestic Product Evolution,Romanian Statistical Review Supplement, Volume (Year): 62 (2014), Issue (Month: 12(December), Pages: Benjamin, C., Herrard, A., Hanese-Bigot, M., Tavesre, C. (2010) Forecasting with an Econometric Model, Springer 9. Romer, D. (1996) Advanced Macroeconomics, McGraw-Hill Company, New York 10. Bai, J., Perron, P. (1998) Estimating and Testing Liniar Models with Multiple Structural Changes, Econometrica, 66, Romanian Statistical Review - Supplement nr. 11 / 2015