Superior Information, Income Shocks and the Permanent Income Hypothesis
AbstractAccording to the permanent income hypothesis with quadratic preferences, savings should react only to transitory income shocks, but not to permanent shocks. The problem is that income shock components are not separately observable. I show how the combination of income realizations with subjective expectations can help to identify separately the transitory and the permanent shock to income, thus providing a powerful test of the theory. The empirical analysis is performed on a sample of Italian households drawn from the 1989-1991 Survey of Household Income and Wealth.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 07.
Date of creation: 01 Sep 1998
Date of revision:
Publication status: Published in Review of Economics and Statistics, 2001, vol. 83, pages 465-476
Subjective expectations; income shocks; permanent income hypothesis;
Other versions of this item:
- Luigi Pistaferri, 2001. "Superior Information, Income Shocks, And The Permanent Income Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 465-476, August.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-28 (All new papers)
- NEP-DGE-1998-12-28 (Dynamic General Equilibrium)
- NEP-MIC-1998-12-28 (Microeconomics)
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