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Three Alternative Approaches to Test the Permanent Income Hypothesis in Dynamic Panels

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  • Laura Serlenga

    ()
    (University of Bari)

Abstract

In this paper we consider three alternative approaches to test the Permanent Income Hypothesis (PIH) in the context of dynamic panels: the aggregate consumption approach, the Euler equation approach and finally Friedman (1957)'s original characteristic tests. Our empirical evidence, using the British Household Panel Survey (BHPS) data, strongly supports the PIH. This analysis can, thus, be considered as supporting the view that empirical tests of PIH, based on aggregate time-series data, might suffer from misspecification or overlook some fundamental characteristics of micro data.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari in its series series with number 0005.

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Length: 813
Date of creation: Feb 2002
Date of revision: Feb 2002
Handle: RePEc:bai:series:wp0005

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Keywords: Permanent Income Hypothesis; British Household Panel Survey;

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  8. Matthew D. Shapiro & N. Gregory Mankiw, 1984. "Trends, Random Walks, and Tests of the Permanent Income Hypothesis," Cowles Foundation Discussion Papers 725, Cowles Foundation for Research in Economics, Yale University.
  9. Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1.
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  17. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  18. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  19. Donald Robertson & James Symons, 1991. "Some Strange Properties of Panel Data Estimators," CEP Discussion Papers dp0044, Centre for Economic Performance, LSE.
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  21. Oxley, Les & McAleer, Michael, 1993. " Econometric Issues in Macroeconomic Models with Generated Regressors," Journal of Economic Surveys, Wiley Blackwell, vol. 7(1), pages 1-40.
  22. Mariger, Randall P & Shaw, Kathryn, 1993. "Unanticipated Aggregate Disturbances and Tests of the Life-Cycle Consumption Model Using Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 48-56, February.
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