THE DETERMINANTS OF CONSUMPTION EXPENDITURE ON DURABLES IN OF BARBADOS

Author(s): Greenidge, Kevin; Holder, Carlos; Moore, Alvon; (2009)

Created 27 Jul, 2009
Categories Working Papers
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Since Barbados is a small open economy with a high import bias in its absorption mix, consumer expenditure on durables is one area of spending that needs to be closely monitored. Such expenditures use valuable foreign reserves without having the potential to earn foreign exchange. In fact, it is often the case that policy makers would prefer to direct the scarce foreign reserves into the productive sectors of the economy. Consequently, an understanding of the factors that determine expenditure on durables is of great importance in order to inform policy decisions. This paper presents a model of consumer expenditure on durables in Barbados. In the model relative prices, income and credit have significant short and long-run effects on expenditure on durables, while hire-purchase terms have only a short-run impact. The results suggest that both fiscal and monetary policy play a significant role in such expenditure.

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