Permanent income hypothesis and variability of consumption
This paper investigates the variability of Finnish consumption with a purpose to determine whether traditional permanent income hypothesis is consistent with Finnish consumption data, or is consumption excessively smooth as suggested in recent empirical studies. A spectral density based measure is used to determine the variability ratios for nondurables consumption and durables expenditures. Results show strong excess smoothness in durables expenditures, and slight excess smoothness in nondurables consumption. The issue of excess smoothness is also approached using cross spectral analysis. The role of features such as liquidity constraints, uncertainty and irreversibility of durables stock in causing excess smoothness is discussed.
Volume (Year): 9 (1996)
Issue (Month): 2 (Autumn)
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