Do consumers behave as the life-cycle/permanent-income theory of consumption predicts?
Widely accepted theories of consumer behavior suggest that consumers act according to a lifetime budget, spending against future earnings so long as they are predictable. Yet this study finds that many consumers respond to changes in income only when they are realized. Furthermore, adjustment costs lead to deviations in the short run from the Life-Cycle/Permanent-Income path. ; These findings suggest that some temporary economic policies may have a larger impact on consumption than LC/PI theory predicts, since consumers do not or cannot spread out the effects over their lifetime. Conversely, permanent policies may have more sluggish results than the theories predict, as consumers require time to adjust consumption to the new level of lifetime resource
Volume (Year): (1992)
Issue (Month): Sep ()
|Contact details of provider:|| Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210|
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Y. Campbell, 1986.
"Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis,"
NBER Working Papers
1805, National Bureau of Economic Research, Inc.
- Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
- repec:fth:harver:1435 is not listed on IDEAS
- John Y. Campbell & N. Gregory Mankiw, 1989.
"Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence,"
NBER Working Papers
2924, National Bureau of Economic Research, Inc.
- John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-276, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, R.F. & Yoo, B.S., 1989. "Cointegrated Economic Time Series: A Survey With New Results," Papers 8-89-13, Pennsylvania State - Department of Economics.
- Goodfriend, Marvin, 1992.
American Economic Review,
American Economic Association, vol. 82(3), pages 508-519, June.
- Charles R. Bean, 1986.
"The Estimation of "Surprise" Models and the "Surprise" Consumption Function,"
Review of Economic Studies,
Oxford University Press, vol. 53(4), pages 497-516.
- Bean, Charles R, 1985. "The Estimation of 'Surprise' Models and the 'Surprise' Consumption Function," CEPR Discussion Papers 54, C.E.P.R. Discussion Papers.
- Hayashi, Fumio, 1982. "The Permanent Income Hypothesis: Estimation and Testing by Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 895-916, October.
- Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
- Simon Kuznets, 1942.
"Uses of National Income in Peace and War,"
in: Uses of National Income in Peace and War, pages 1-45
National Bureau of Economic Research, Inc.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, September.
- Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
- Gali, Jordi, 1991. "Budget Constraints and Time-Series Evidence on Consumption," American Economic Review, American Economic Association, vol. 81(5), pages 1238-1253, December.
When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:1992:i:sep:p:3-14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.