<p>To supplement the above answer, you can force your regression to not have a constant. In this case, economic theory will indicate that $C(0)$ is at least non zero. </p>

CC BY-SA 3.0
2016-01-21T07:52:42.467Z
If the regression does not have a constant wouldn't that imply exactly that $C(0) = 0$? (And mess up other more relevant points of the estimate as well.)
Giskard
CC BY-SA 3.0
2016-01-21T16:50:48.387Z
Yes, it would imply that. But thats my point- in this sense, a constrained regression would make sense as theory tells us that in the population, $C(0)=0$
ChinG
CC BY-SA 3.0
2016-01-21T16:52:57.117Z
Your answer says "theory will indicate that $C(0)$ is at least non zero" which conflicts with your comment or I misunderstand something. I would also add that I don't think theory claims $C(0) = 0$, people would take loans or use savings.
Giskard
CC BY-SA 3.0
2016-01-21T16:57:20.353Z
Sure, which drove me to my comment that $C(0)$ is at least non-zero. People would consume something, even with 0 income. My point is simply that if we do not precisely know the value of the constant, we know at least  in the population model via econ theory that the level of autonomous consumption is non-negative. So, given that the OP has estimated a negative constant, I think a plausible fix is to fit a non-constant model, rather than arbitrarily selecting a positive constant.
ChinG
CC BY-SA 3.0
2016-01-21T17:04:15.167Z
Now I understand. I still disagree with proposed fix :)
But I am not an expert in this area so you may well be right.
Giskard
CC BY-SA 3.0
2016-01-20T15:37:19.020Z
2016-01-20T15:37:19.020Z
ChinG
<p>I assume that you ran a linear regression to find the $C(Y)$ function and by negative intercept you mean $C(0)&lt;0$. This does not contradict anything because what you have is an estimate of the $C(Y)$ function based on empirical data that was probably centered around some non-zero value of $Y$. So it is quite possible that the function's estimate is incorrect far from the observed range of $Y$, especially if you were using a linear regression which is a very basic functional form.</p>

<p>If the actual $C(Y)$ consumption function, not the estimate, were such that $C(0) &lt; 0$ then indeed we would have a contradiction. But as long as you are clear that what you have is an estimate for $C(Y)$ this problem does not arise.</p>

CC BY-SA 3.0
2016-01-20T23:50:18.333Z
Thanks for the answer. I did use a linear regression to find the $C(Y)$ function. I was wondering what empirical conclusions can I gather about this country? Would it imply that the people in that particular prefer to save when they do not have income? Furthermore, my marginal propensity to consume is greater than 1, so it seems to violate Keynes assumptions.
Mat.S
CC BY-SA 3.0
2016-01-21T07:51:34.387Z
@Mat.S As I sad, $C(0)$ basically has no meaning, it is one of the worst estimated points of your function. This and the marginal propensity problem most likely arises due to the function form (linear) or some other variable that you did not include in your regression.
Giskard
CC BY-SA 3.0
2016-01-20T08:25:20.090Z
2016-01-20T08:25:20.090Z
Giskard
<p>I am doing an assignment where I calculate the consumption function of a certain country from empirical data and I am getting a negative intercept. How can this be interpreted because usually, isn't the intercept always positive?</p>

<macroeconomics>
Consumption function with negative intercept?
Mat.S
# Consumption function with negative intercept?

(Asked by: username_0 on 2016-01-19)

I am doing an assignment where I calculate the consumption function of a certain country from empirical data and I am getting a negative intercept. How can this be interpreted because usually, isn't the intercept always positive?

**Tags:** macroeconomics


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## 2 answers

### Answer by username_2 on 2016-01-20. Score: 3 | Accepted answer

I assume that you ran a linear regression to find the $C(Y)$ function and by negative intercept you mean $C(0)<0$. This does not contradict anything because what you have is an estimate of the $C(Y)$ function based on empirical data that was probably centered around some non-zero value of $Y$. So it is quite possible that the function's estimate is incorrect far from the observed range of $Y$, especially if you were using a linear regression which is a very basic functional form.

If the actual $C(Y)$ consumption function, not the estimate, were such that $C(0) < 0$ then indeed we would have a contradiction. But as long as you are clear that what you have is an estimate for $C(Y)$ this problem does not arise.

> **Comments:**
> **username_0**: Thanks for the answer. I did use a linear regression to find the $C(Y)$ function. I was wondering what empirical conclusions can I gather about this country? Would it imply that the people in that particular prefer to save when they do not have income? Furthermore, my marginal propensity to consume is greater than 1, so it seems to violate Keynes assumptions.  
> **username_2**: @username_0 As I sad, $C(0)$ basically has no meaning, it is one of the worst estimated points of your function. This and the marginal propensity problem most likely arises due to the function form (linear) or some other variable that you did not include in your regression.  

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### Answer by username_1 on 2016-01-20. Score: 0

To supplement the above answer, you can force your regression to not have a constant. In this case, economic theory will indicate that $C(0)$ is at least non zero.

> **Comments:**
> **username_2**: If the regression does not have a constant wouldn't that imply exactly that $C(0) = 0$? (And mess up other more relevant points of the estimate as well.)  
> **username_1**: Yes, it would imply that. But thats my point- in this sense, a constrained regression would make sense as theory tells us that in the population, $C(0)=0$  
> **username_2**: Your answer says "theory will indicate that $C(0)$ is at least non zero" which conflicts with your comment or I misunderstand something. I would also add that I don't think theory claims $C(0) = 0$, people would take loans or use savings.  
> **username_1**: Sure, which drove me to my comment that $C(0)$ is at least non-zero. People would consume something, even with 0 income. My point is simply that if we do not precisely know the value of the constant, we know at least  in the population model via econ theory that the level of autonomous consumption is non-negative. So, given that the OP has estimated a negative constant, I think a plausible fix is to fit a non-constant model, rather than arbitrarily selecting a positive constant.  
> **username_2**: Now I understand. I still disagree with proposed fix :) But I am not an expert in this area so you may well be right.  

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