Measuring Deviations from the Permanent Income Hypothesis
AbstractThis paper examines the permanent income hypothesis by measuring the extent to which consumption deviates from it. Measuring deviations enables us to interpret empirical results in terms of economic significance as opposed to statistical significance. Namely, the author examines whether the permanent income hypothesis is a reasonable model rather than whether it is exactly correctly specified. This paper finds that postwar U.S. consumption deviates from the permanent income hypothesis by less than 4 percent, which indicates a reasonably good fit when viewed in a representative agent framework with so many restrictive assumptions. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 37 (1996)
Issue (Month): 1 (February)
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- Engsted, Tom, 1998. "Money Demand During Hyperinflation: Cointegration, Rational Expectations, and the Importance of Money Demand Shocks," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 533-552, July.
- Mark A. Hooker, 1997. "Misspecification versus bubbles in hyperinflation data: Monte Carlo and interwar European evidence," Finance and Economics Discussion Series 1997-49, Board of Governors of the Federal Reserve System (U.S.).
- Engsted, Tom, 2002. " Measures of Fit for Rational Expectations Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 301-55, July.
- Engsted, Tom, 2000.
"Measuring Noise in the Permanent Income Hypothesis,"
Finance Working Papers
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- Engsted, Tom, 2002. "Measuring noise in the Permanent Income Hypothesis," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 353-370, September.
- Liping Gao & Hyeongwoo Kim & Yaoqi Zhang, 2013. "Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China," Auburn Economics Working Paper Series auwp2013-05, Department of Economics, Auburn University.
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