TURKEY S CONSUMPTION FUNCTION: TIME SERIES ANALYSIS WITH STRUCTURAL BREAK (1998-2016)

A consumption function indicates the relationship between consumption and variables that may affect consumption. In this study, Turkey s consumption function has been analyzed in the framework of life cycle-permanent income hypothesis using quarterly data between the years 1998-2016.The purpose of this article is to investigate the effect of interest rate and income on consumption expenditures. Fully Modified Ordinary Least Saquare (FMOLS) method was used to estimate the long term cointegration relationship between the variables and Hatemi-J cointegration test was applied. The test takes account of two structural breaks. In Turkey, there is a significant relationship between the private final consumption expenditure and income in the long term and also consumption is determined by income and wealth. For analysis of short-term relationship, Error Correction Model (ECM) was established and according to the results about %66 of imbalances in consumption expenditures are in balance in the next period.