Aggregate consumption dynamics are one of the major determinants of modern economies' macroeconomic fluctuations, and the theoretical and empirical analysis has progressed considerably (since Keynes) in the continuous attempt to describe consumption dynamics as realistically as possible. Nevertheless, such an analysis has persistently relied on the neo-classical assumption of exogeneity of preferences, thereby ignoring the role of advertising in altering consumers' preferences and increasing the overall level of consumption. This paper conducts an empirical analysis of the effect of advertising on aggregate consumption in Italy in the period 1980-2000, using quarterly data. It builds an econometric model assuming different geometrically rate of decline for explanatory variables (advertising, disposable income and prices), and subsequently test various restrictions depending on the assumed rates of decline. The conclusion is that advertising had a positive impact on aggregate consumption, with short-term and log-term elasticities being respectively 0.034 and 0.16
The persuasive nature of advertising might therefore represent a potential tool to sustain consumers demand. This particular feature carries many interesting and far-reaching implications in modern economies, being themselves increasingly characterized by a "monopolistic competition" industrial structures.