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China9apos9s Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis

Author

Listed:
  • Saima Liaqat

    (Visiting PhD Scholar,)

  • Khalid Khan
  • Po Bunnika

Abstract

The study investigated the empirical rationale of Absolute and Permanent Income Hypothesis (AIH) & (PIH) for China by applying the yearly data from 1970-2016. The outcomes of the research study dismissed the validity of PIH, at the same time it reinforced the soundness of AIH in the country. The aftereffects of CMMl demonstrate that any change that occurs in expected income significantly affects the innovation in real private consumption. Moreover, the share of forward-looking households is genuinely lower than backward-looking households. Under the CMM the estimated value of (1- λ) for China is 0.25, which implies that by and large 25 percent of the households set their consumption base on permanent income, albeit the rest of the families take their consumption preferences are subject to current income, notwithstanding the outcomes of the study bring up a solid dismissal of PIH for China.

Suggested Citation

  • Saima Liaqat & Khalid Khan & Po Bunnika, 2018. "China9apos9s Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis," Global Economics Review, Humanity Only, vol. 3(1), pages 90-97, June.
    • Handle: RePEc:aaw:journl:v:3:y:2018:i:1:p:90-97
    DOI: 10.31703/ger.2018(III-I).10
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    References listed on IDEAS

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    1. Joshua K. Hausman & Johannes F. Wieland, 2014. "Abenomics: Preliminary Analysis and Outlook," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 1-76.
    2. Khalid Khan, 2012. "The Testing of Hall’s Permanent Income Hypothesis: A Case Study of Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(4), pages 518-522.
    3. B. Bhaskara Rao, 2005. "Testing Hall's permanent income hypothesis for a developing country: the case of Fiji," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 245-248.
    4. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
    5. Khalid Khan & Chen FEI & Muhammad Abdul Kamal & Sarfaraz Ahmed Shaikh, 2015. "Determinants of Consumption Function, In Case of China and G7 Countries," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(4), pages 202-210, April.
    6. S. Boragan Aruoba & Frank Schorfheide, 2011. "Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 60-90, January.
    7. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    8. Joshua K. Hausman & Johannes F. Wieland, 2014. "Abenomics: Preliminary Analysis and Outlook," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 1-76.
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    Cited by:

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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