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Testing the stochastic implications of the life cycle-permanent income hypothesis using UK regional time-series data

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  • Robert Gausden
  • Ian Alan Whitfield

Abstract

This paper applies exclusion tests of the pure life cycle—permanent income hypothesis (LCPIH) to time-series data on each of the eleven standard regions of the UK. Data are annual and extend from 1975 to 1994. The results obtained suggest that there are considerable differences in consumption behaviour across the regions. Theory has indicated that a departure of consumption behaviour from that predicted by the LCPIH can occur because of a change in unemployment. Consequently, a comparison is undertaken of the empirical results obtained for the eleven regions and the respective unemployment movements. Following this comparison, it is possible to conclude that the contrasting unemployment experiences of the regions of the UK have contributed significantly to, yet cannot account for fully, the observed differences in consumption behaviour.

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  • Robert Gausden & Ian Alan Whitfield, 2000. "Testing the stochastic implications of the life cycle-permanent income hypothesis using UK regional time-series data," Applied Economics, Taylor & Francis Journals, vol. 32(10), pages 1299-1310.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:10:p:1299-1310
    DOI: 10.1080/000368400404452
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. John Campbell & Angus Deaton, 1989. "Why is Consumption So Smooth?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 357-373.
    3. Daly, Vince & Hadjimatheou, George, 1981. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Evidence for the U. K. Economy: Comment," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 596-599, June.
    4. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 10(2), pages 1-41, Summer.
    5. Paul Johnson, 1983. "Life‐Cycle Consumption under Rational Expectations: Some Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 59(4), pages 345-350, December.
    6. Johnson, Paul, 1983. "Life-Cycle Consumption under Rational Expectations: Some Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 59(167), pages 345-350, December.
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    Cited by:

    1. KARGI, Bilal, 2014. "Türkiye Ekonomisinde Sürekli Gelir Hipotezine İlişkin Kanıtlar: Zaman Serileri Analizi (2004-2012) [Evidence for Turkey's Economy Permanent Income Hypothesis: Time Series Analysis (2004-2012)]," MPRA Paper 55696, University Library of Munich, Germany.

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