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Testing the Predictability of Consumption Growth: Evidence from China

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  • Liping Gao
  • Hyeongwoo Kim

Abstract

Chow (1985, 2010, 2011) reports indirect evidence in favor of the permanent income hypothesis using time series observations in China. We revisit this issue by evaluating direct measures of the predictability of consumption growth in China during the post-economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable, which sharply contrasts the implication of Chow (1985, 2010, 2011).

Suggested Citation

  • Liping Gao & Hyeongwoo Kim, 2015. "Testing the Predictability of Consumption Growth: Evidence from China," Auburn Economics Working Paper Series auwp2015-19, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2015-19
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    File URL: https://cla.auburn.edu/econwp/Archives/2015/2015-19.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Permanent Income Hypothesis; Consumption; Diebold-Mariano-West Statistic;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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