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Does Household Consumption Behave as a Martingale? A Test for Rural South India

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  • Bhargava, Alok
  • Ravallion, Martin

Abstract

The hypothesis that consumption evolves over time as a martingale process is tested on household panel data for three villages in South India. A novel feature of the methodology is that it gives consistent estimates of dynamic effects in short panels. The estimated coefficients of lagged consumption are generally smaller than unity and a number of the lagged income and wealth variables are statistically significant. The results are inconsistent with the proposition that consumption equals permanent income. This is also true when the data are disaggregated by household wealth. Copyright 1993 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 75 (1993)
Issue (Month): 3 (August)
Pages: 500-504

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Handle: RePEc:tpr:restat:v:75:y:1993:i:3:p:500-504

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Masao Ogaki & Qiang Zhang, 2000. "Risk Sharing in Village India: the Rule of Decreasing Relative Risk Aversion," Working Papers, Ohio State University, Department of Economics 00-02, Ohio State University, Department of Economics.
  2. Ravallion, Martin, 2003. "Targeted transfers in poor countries : revisiting the tradeoffs and policy options," Policy Research Working Paper Series, The World Bank 3048, The World Bank.
  3. Sandra Freire, 2004. "Funeral Costs, Saving Behaviour and HIV/AIDS," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla04092, Université Panthéon-Sorbonne (Paris 1).
  4. Morduch, Jonathan, 2002. "Consumption Smoothing Across Space: Testing Theories of Risk-Sharing in the ICRISAT Study Region of South India," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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